Shanghai DZH Limited (SHSE:601519) shareholders have seen the share price descend 27% over the month. But looking back over the last year, the returns have actually been rather pleasing! After all, the share price is up a market-beating 24% in that time.

Although Shanghai DZH has shed CN¥1.4b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

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.

Over the last twelve months Shanghai DZH went from profitable to unprofitable. While this may prove temporary, we'd consider it a negative, so we would not have expected to see the share price up. It may be that the company has done well on other metrics.

Shanghai DZH's revenue actually dropped 6.8% over last year. So using a snapshot of key business metrics doesn't give us a good picture of why the market is bidding up the stock.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

This free interactive report on Shanghai DZH's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

It's good to see that Shanghai DZH has rewarded shareholders with a total shareholder return of 24% in the last twelve months. Since the one-year TSR is better than the five-year TSR (the latter coming in at 1.0% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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 DZH (at least 1 which is significant) , and understanding them should be part of your investment process.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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.