Investing in stocks inevitably means buying into some companies that perform poorly. But the long term shareholders of Chongqing Fuling Zhacai Group Co., Ltd. (SZSE:002507) have had an unfortunate run in the last three years. So they might be feeling emotional about the 59% share price collapse, in that time. And more recent buyers are having a tough time too, with a drop of 32% in the last year.

Since Chongqing Fuling Zhacai Group has shed CN¥715m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

During the unfortunate three years of share price decline, Chongqing Fuling Zhacai Group actually saw its earnings per share (EPS) improve by 2.9% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.

It looks to us like the market was probably too optimistic around growth three years ago. But it's possible a look at other metrics will be enlightening.

We note that, in three years, revenue has actually grown at a 3.4% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating Chongqing Fuling Zhacai Group further; while we may be missing something on this analysis, there might also be an opportunity.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Chongqing Fuling Zhacai Group is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.

A Different Perspective

We regret to report that Chongqing Fuling Zhacai Group shareholders are down 31% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 15%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 7% over the last half decade. 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 Chongqing Fuling Zhacai Group better, we need to consider many other factors. Even so, be aware that Chongqing Fuling Zhacai Group is showing 1 warning sign in our investment analysis , you should know about...

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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.