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Volatility 101: Should China Shenghai Food Holdings (HKG:1676) Shares Have Dropped 49%?

Simply Wall St

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Investors in China Shenghai Food Holdings Company Limited (HKG:1676) have tasted that bitter downside in the last year, as the share price dropped 49%. That's disappointing when you consider the market returned -1.2%. Because China Shenghai Food Holdings hasn't been listed for many years, the market is still learning about how the business performs. The falls have accelerated recently, with the share price down 16% in the last three months.

See our latest analysis for China Shenghai Food Holdings

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

Unhappily, China Shenghai Food Holdings had to report a 17% decline in EPS over the last year. This reduction in EPS is not as bad as the 49% share price fall. This suggests the EPS fall has made some shareholders are more nervous about the business. The P/E ratio of 1.60 also points to the negative market sentiment.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

SEHK:1676 Past and Future Earnings, February 10th 2020

Dive deeper into China Shenghai Food Holdings's key metrics by checking this interactive graph of China Shenghai Food Holdings's earnings, revenue and cash flow.

A Different Perspective

China Shenghai Food Holdings shareholders are down 49% for the year, even worse than the market loss of 1.2%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. With the stock down 16% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. 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. Be aware that China Shenghai Food Holdings is showing 4 warning signs in our investment analysis , and 1 of those shouldn't be ignored...

But note: China Shenghai Food 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 HK exchanges.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.