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Investors can approximate the average market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Unfortunately the Dongguang Chemical Limited (HKG:1702) share price slid 42% over twelve months. That falls noticeably short of the market return of around -0.5%. Because Dongguang Chemical hasn't been listed for many years, the market is still learning about how the business performs.
Check out our latest analysis for Dongguang Chemical
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 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).
Even though the Dongguang Chemical share price is down over the year, its EPS actually improved. It could be that the share price was previously over-hyped. It's surprising to see the share price fall so much, despite the improved EPS. But we might find some different metrics explain the share price movements better.
With a low yield of 1.7% we doubt that the dividend influences the share price much. Dongguang Chemical's revenue is actually up 23% over the last year. Since we can't easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
Balance sheet strength is crucual. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
Dongguang Chemical shareholders are down 42% for the year (even including dividends), even worse than the market loss of 0.5%. That's disappointing, but it's worth keeping in mind that the market-wide selling wouldn't have helped. Putting aside the last twelve months, it's good to see the share price has rebounded by 3.1%, in the last ninety days. Let's just hope this isn't the widely-feared 'dead cat bounce' (which would indicate further declines to come). Before forming an opinion on Dongguang Chemical you might want to consider these 3 valuation metrics.
But note: Dongguang Chemical 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).