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Investors in Canaan (NASDAQ:CAN) from a year ago are still down 65%, even after 7.9% gain this past week

Even the best stock pickers will make plenty of bad investments. Unfortunately, shareholders of Canaan Inc. (NASDAQ:CAN) have suffered share price declines over the last year. In that relatively short period, the share price has plunged 65%. Because Canaan hasn't been listed for many years, the market is still learning about how the business performs. Furthermore, it's down 15% in about a quarter. That's not much fun for holders. But this could be related to the weak market, which is down 9.8% in the same period.

On a more encouraging note the company has added CN¥52m to its market cap in just the last 7 days, so let's see if we can determine what's driven the one-year loss for shareholders.

View our latest analysis for Canaan

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

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Canaan managed to increase earnings per share from a loss to a profit, over the last 12 months.

The result looks like a strong improvement to us, so we're surprised the market has sold down the shares. If the company can sustain the earnings growth, this might be an inflection point for the business, which would make right now a really interesting time to study it more closely.

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

earnings-per-share-growth
earnings-per-share-growth

It is of course excellent to see how Canaan has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Canaan's financial health with this free report on its balance sheet.

A Different Perspective

Canaan shareholders are down 65% for the year, even worse than the market loss of 8.4%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. The share price decline has continued throughout the most recent three months, down 15%, suggesting an absence of enthusiasm from investors. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. It's always interesting to track share price performance over the longer term. But to understand Canaan better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Canaan (at least 1 which is a bit unpleasant) , and understanding them should be part of your investment process.

But note: Canaan 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 US exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.