While it may not be enough for some shareholders, we think it is good to see the Shenzhen Sea Star Technology Co.,Ltd (SZSE:002137) share price up 21% in a single quarter. But that is minimal compensation for the share price under-performance over the last year. The cold reality is that the stock has dropped 21% in one year, under-performing the market.

Since Shenzhen Sea Star TechnologyLtd has shed CN¥375m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

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.

Unfortunately Shenzhen Sea Star TechnologyLtd reported an EPS drop of 90% for the last year. Readers should not this outcome was influenced by the impact of extraordinary items on EPS. The share price fall of 21% isn't as bad as the reduction in earnings per share. So the market may not be too worried about the EPS figure, at the moment -- or it may have expected earnings to drop faster. Indeed, with a P/E ratio of 1.17k there is obviously some real optimism that earnings will bounce back.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

Dive deeper into Shenzhen Sea Star TechnologyLtd's key metrics by checking this interactive graph of Shenzhen Sea Star TechnologyLtd's earnings, revenue and cash flow.

A Different Perspective

Shenzhen Sea Star TechnologyLtd shareholders are down 21% for the year, but the market itself is up 6.2%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 1.8% 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. 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. For example, we've discovered 2 warning signs for Shenzhen Sea Star TechnologyLtd that you should be aware of before investing here.

We will like Shenzhen Sea Star TechnologyLtd 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.