Hengli Industrial Development Group (SZSE:000622) adds CN¥85m to market cap in the past 7 days, though investors from five years ago are still down 74%

It's nice to see the Hengli Industrial Development Group Co., Ltd. (SZSE:000622) share price up 16% in a week. But spare a thought for the long term holders, who have held the stock as it bled value over the last five years. Five years have seen the share price descend precipitously, down a full 74%. So we don't gain too much confidence from the recent recovery. The million dollar question is whether the company can justify a long term recovery.

While the stock has risen 16% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

Check out our latest analysis for Hengli Industrial Development Group

Hengli Industrial Development Group isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last five years Hengli Industrial Development Group saw its revenue shrink by 15% per year. That puts it in an unattractive cohort, to put it mildly. So it's not that strange that the share price dropped 12% per year in that period. This kind of price performance makes us very wary, especially when combined with falling revenue. Of course, the poor performance could mean the market has been too severe selling down. That can happen.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

If you are thinking of buying or selling Hengli Industrial Development Group stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

While the broader market lost about 14% in the twelve months, Hengli Industrial Development Group shareholders did even worse, losing 61%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 12% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Hengli Industrial Development Group better, we need to consider many other factors. Take risks, for example - Hengli Industrial Development Group has 4 warning signs (and 3 which make us uncomfortable) we think you should know about.

But note: Hengli Industrial Development Group 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 Chinese 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.

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