Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by Bytes Technology Group plc (LON:BYIT) shareholders over the last year, as the share price declined 17%. That's disappointing when you consider the market declined 1.2%. Bytes Technology Group hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. Unfortunately the share price momentum is still quite negative, with prices down 15% in thirty days.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

See our latest analysis for Bytes Technology Group

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 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.

Even though the Bytes Technology Group share price is down over the year, its EPS actually improved. Of course, the situation might betray previous over-optimism about growth.

The divergence between the EPS and the share price is quite notable, during the year. So it's easy to justify a look at some other metrics.

With a low yield of 0.9% we doubt that the dividend influences the share price much. Bytes Technology Group managed to grow revenue over the last year, which is usually a real positive. 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.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. So we recommend checking out this free report showing consensus forecasts

A Different Perspective

Bytes Technology Group shareholders are down 17% for the year (even including dividends), 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. The share price decline has continued throughout the most recent three months, down 7.8%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. 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. For example, we've discovered 2 warning signs for Bytes Technology Group that you should be aware of before investing here.

Of course Bytes Technology Group may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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.