It is a pleasure to report that the Jiugui Liquor Co., Ltd. (SZSE:000799) is up 54% in the last quarter. But over the last three years we've seen a quite serious decline. Indeed, the share price is down a tragic 70% in the last three years. So it is really good to see an improvement. After all, could be that the fall was overdone.

On a more encouraging note the company has added CN¥3.5b to its market cap in just the last 7 days, so let's see if we can determine what's driven the three-year loss for shareholders.

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).

Jiugui Liquor saw its EPS decline at a compound rate of 48% per year, over the last three years. In comparison the 33% compound annual share price decline isn't as bad as the EPS drop-off. So, despite the prior disappointment, shareholders must have some confidence the situation will improve, longer term. This positive sentiment is also reflected in the generous P/E ratio of 159.54.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

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

A Different Perspective

Investors in Jiugui Liquor had a tough year, with a total loss of 17% (including dividends), against a market gain of about 11%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 12% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Jiugui Liquor (at least 2 which are a bit unpleasant) , and understanding them should be part of your investment process.

We will like Jiugui Liquor better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider 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.