Many investors define successful investing as beating the market average over the long term. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. We regret to report that long term Xinzhi Group Co., Ltd. (SZSE:002664) shareholders have had that experience, with the share price dropping 27% in three years, versus a market decline of about 17%. And over the last year the share price fell 25%, so we doubt many shareholders are delighted. And the share price decline continued over the last week, dropping some 9.7%. However, this move may have been influenced by the broader market, which fell 4.5% in that time.

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

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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Xinzhi Group saw its EPS decline at a compound rate of 11% per year, over the last three years. This change in EPS is reasonably close to the 10% average annual decrease in the share price. So it seems that investor expectations of the company are staying pretty steady, despite the disappointment. In this case, it seems that the EPS is guiding the share price.

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

Dive deeper into Xinzhi Group's key metrics by checking this interactive graph of Xinzhi Group's earnings, revenue and cash flow.

A Different Perspective

We regret to report that Xinzhi Group shareholders are down 25% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 0.6%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 2% 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. Is Xinzhi Group cheap compared to other companies? These 3 valuation measures might help you decide.

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.