Investors can approximate the average market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. For example, the Zhejiang Dafeng Industry Co., Ltd (SHSE:603081) share price is down 33% in the last year. That falls noticeably short of the market decline of around 14%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 8.4% in three years. The falls have accelerated recently, with the share price down 13% in the last three months.

With the stock having lost 11% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

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 Dafeng Industry reported an EPS drop of 53% for the last year. The share price fall of 33% isn't as bad as the reduction in earnings per share. It may have been that the weak EPS was not as bad as some had feared.

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

This free interactive report on Zhejiang Dafeng Industry's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

While the broader market lost about 14% in the twelve months, Zhejiang Dafeng Industry shareholders did even worse, losing 33% (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 5% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand Zhejiang Dafeng Industry better, we need to consider many other factors. For example, we've discovered 3 warning signs for Zhejiang Dafeng Industry (1 is a bit concerning!) 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.