Even the best investor on earth makes unsuccessful investments. But it should be a priority to avoid stomach churning catastrophes, wherever possible. We wouldn't blame Dunxin Financial Holdings Limited (NYSEMKT:DXF) shareholders if they were still in shock after the stock dropped like a lead balloon, down 71% in just one year. A loss like this is a stark reminder that portfolio diversification is important. Because Dunxin Financial Holdings hasn't been listed for many years, the market is still learning about how the business performs. Even worse, it's down 17% in about a month, which isn't fun at all.

View our latest analysis for Dunxin Financial Holdings

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.

Unhappily, Dunxin Financial Holdings had to report a 60% decline in EPS over the last year. We note that the 71% share price drop is very close to the EPS drop. Given the lower EPS we might have expected investors to lose confidence in the stock, but that doesn't seemed to have happened. Rather, the share price has approximately tracked EPS growth.

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

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

A Different Perspective

While Dunxin Financial Holdings shareholders are down 71% for the year, the market itself is up 20%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. With the stock down 17% 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. 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. For instance, we've identified 3 warning signs for Dunxin Financial Holdings (2 shouldn't be ignored) that you should be aware of.

We will like Dunxin Financial Holdings better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.