It's not possible to invest over long periods without making some bad investments. But you want to avoid the really big losses like the plague. So consider, for a moment, the misfortune of Shida Shinghwa Advanced Material Group Co., Ltd. (SHSE:603026) investors who have held the stock for three years as it declined a whopping 82%. That would be a disturbing experience. And over the last year the share price fell 37%, so we doubt many shareholders are delighted. More recently, the share price has dropped a further 9.2% in a month. Importantly, this could be a market reaction to the recently released financial results. You can check out the latest numbers in our company report. While a drop like that is definitely a body blow, money isn't as important as health and happiness.

After losing 7.3% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Over the three years that the share price declined, Shida Shinghwa Advanced Material Group's earnings per share (EPS) dropped significantly, falling to a loss. Due to the loss, it's not easy to use EPS as a reliable guide to the business. However, we can say we'd expect to see a falling share price in this scenario.

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

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

A Different Perspective

Shida Shinghwa Advanced Material Group shareholders are down 37% for the year (even including dividends), but the market itself is up 7.9%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 3% 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. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.