It is doubtless a positive to see that the Bafang Electric (Suzhou) Co.,Ltd. (SHSE:603489) share price has gained some 52% in the last three months. But only the myopic could ignore the astounding decline over three years. The share price has sunk like a leaky ship, down 78% in that time. So it sure is nice to see a bit of an improvement. But the more important question is whether the underlying business can justify a higher price still.

Since Bafang Electric (Suzhou)Ltd has shed CN¥496m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

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

Bafang Electric (Suzhou)Ltd saw its EPS decline at a compound rate of 52% per year, over the last three years. In comparison the 40% compound annual share price decline isn't as bad as the EPS drop-off. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines. With a P/E ratio of 104.91, it's fair to say the market sees a brighter future for the business.

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

It might be well worthwhile taking a look at our free report on Bafang Electric (Suzhou)Ltd's earnings, revenue and cash flow.

A Different Perspective

Bafang Electric (Suzhou)Ltd shareholders are down 21% for the year (even including dividends), but the market itself is up 13%. 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 8% 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. It's always interesting to track share price performance over the longer term. But to understand Bafang Electric (Suzhou)Ltd better, we need to consider many other factors. For instance, we've identified 3 warning signs for Bafang Electric (Suzhou)Ltd (1 doesn't sit too well with us) that you should be aware of.

Of course Bafang Electric (Suzhou)Ltd may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.