Zhejiang Zhongcheng Packing Material Co., Ltd. (SZSE:002522) shareholders should be happy to see the share price up 24% in the last month. But that doesn't change the fact that the returns over the last three years have been less than pleasing. After all, the share price is down 48% in the last three years, significantly under-performing the market.

While the last three years has been tough for Zhejiang Zhongcheng Packing Material shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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).

During the three years that the share price fell, Zhejiang Zhongcheng Packing Material's earnings per share (EPS) dropped by 26% each year. In comparison the 20% compound annual share price decline isn't as bad as the EPS drop-off. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

Dive deeper into Zhejiang Zhongcheng Packing Material's key metrics by checking this interactive graph of Zhejiang Zhongcheng Packing Material's earnings, revenue and cash flow.

A Different Perspective

Investors in Zhejiang Zhongcheng Packing Material had a tough year, with a total loss of 21% (including dividends), against a market gain of about 3.3%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 5% 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We've spotted 2 warning signs for Zhejiang Zhongcheng Packing Material you should be aware of.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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.