It's nice to see the Jiangsu Dingsheng New Materials Joint-Stock Co.,Ltd (SHSE:603876) share price up 10% in a week. But that isn't much consolation to those who have suffered through the declines of the last year. Specifically, the stock price slipped by 66% in that time. Some might say the recent bounce is to be expected after such a bad drop. You could argue that the sell-off was too severe.

Although the past week has been more reassuring for shareholders, they're still in the red over the last year, so let's see if the underlying business has been responsible for the decline.

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Unfortunately Jiangsu Dingsheng New Materials Ltd reported an EPS drop of 33% for the last year. This reduction in EPS is not as bad as the 66% share price fall. So it seems the market was too confident about the business, a year ago. The P/E ratio of 9.51 also points to the negative market sentiment.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that Jiangsu Dingsheng New Materials Ltd has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Jiangsu Dingsheng New Materials Ltd stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

We regret to report that Jiangsu Dingsheng New Materials Ltd shareholders are down 65% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 22%. 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 1.7% 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Jiangsu Dingsheng New Materials Ltd , and understanding them should be part of your investment process.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.