One simple way to benefit from a rising market is to buy an index fund. But in any given year a good portion of stocks will fall short of that. That's what happened in the case of Zhejiang Jiaxin Silk Corp.,Ltd. (SZSE:002404): its share price dropped 32% while the market declined 26%. At least the damage isn't so bad if you look at the last three years, since the stock is down 16% in that time. The falls have accelerated recently, with the share price down 23% in the last three months. Of course, this share price action may well have been influenced by the 19% decline in the broader market, throughout the period.

If the past week is anything to go by, investor sentiment for Zhejiang Jiaxin SilkLtd isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Unfortunately Zhejiang Jiaxin SilkLtd reported an EPS drop of 15% for the last year. The share price decline of 32% is actually more than the EPS drop. So it seems the market was too confident about the business, a year ago.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

It might be well worthwhile taking a look at our free report on Zhejiang Jiaxin SilkLtd's earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Zhejiang Jiaxin SilkLtd's TSR for the last 1 year was -29%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

While the broader market lost about 26% in the twelve months, Zhejiang Jiaxin SilkLtd shareholders did even worse, losing 29% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 1.3% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 1 warning sign for Zhejiang Jiaxin SilkLtd that you should be aware of before investing here.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Chinese exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.