It is a pleasure to report that the Shanghai Ganglian E-Commerce Holdings Co., Ltd. (SZSE:300226) is up 66% in the last quarter. But if you look at the last five years the returns have not been good. In fact, the share price is down 32%, which falls well short of the return you could get by buying an index fund.

On a more encouraging note the company has added CN¥420m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

During the unfortunate half decade during which the share price slipped, Shanghai Ganglian E-Commerce Holdings actually saw its earnings per share (EPS) improve by 4.0% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.

Based on these numbers, we'd venture that the market may have been over-optimistic about forecast growth, half a decade ago. Having said that, we might get a better idea of what's going on with the stock by looking at other metrics.

We don't think that the 0.3% is big factor in the share price, since it's quite small, as dividends go. It could be that the revenue decline of 3.1% per year is viewed as evidence that Shanghai Ganglian E-Commerce Holdings is shrinking. That could explain the weak share price.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

Shanghai Ganglian E-Commerce Holdings shareholders are down 9.7% for the year (even including dividends), but the market itself is up 7.8%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 6% over the last half decade. 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Shanghai Ganglian E-Commerce Holdings , and understanding them should be part of your investment process.

But note: Shanghai Ganglian E-Commerce Holdings may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.