Market is not liking NanJing AoLian AE&EALtd's (SZSE:300585) earnings decline as stock retreats 12% this week

Investors can approximate the average market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Unfortunately the NanJing AoLian AE&EA Co.,Ltd (SZSE:300585) share price slid 40% over twelve months. That's well below the market decline of 12%. However, the longer term returns haven't been so bad, with the stock down 25% in the last three years. Unfortunately the share price momentum is still quite negative, with prices down 23% in thirty days.

Since NanJing AoLian AE&EALtd has shed CN¥229m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

See our latest analysis for NanJing AoLian AE&EALtd

Given that NanJing AoLian AE&EALtd only made minimal earnings in the last twelve months, we'll focus on revenue to gauge its business development. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

NanJing AoLian AE&EALtd grew its revenue by 17% over the last year. That's definitely a respectable growth rate. Meanwhile, the share price is down 40% over twelve months, which is disappointing given the progress made. You might even wonder if the share price was previously over-hyped. But if revenue keeps growing, then at a certain point the share price would likely follow.

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

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

We regret to report that NanJing AoLian AE&EALtd shareholders are down 40% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 12%. 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 0.5% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Take risks, for example - NanJing AoLian AE&EALtd has 4 warning signs (and 2 which don't sit too well with us) we think you should know about.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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.