Jiangxi Hongdu Aviation Industry (SHSE:600316) earnings and shareholder returns have been trending downwards for the last three years, but the stock lifts 5.1% this past week

As an investor its worth striving to ensure your overall portfolio beats the market average. But if you try your hand at stock picking, you risk returning less than the market. Unfortunately, that's been the case for longer term Jiangxi Hongdu Aviation Industry Co., Ltd. (SHSE:600316) shareholders, since the share price is down 50% in the last three years, falling well short of the market decline of around 21%.

On a more encouraging note the company has added CN¥653m to its market cap in just the last 7 days, so let's see if we can determine what's driven the three-year loss for shareholders.

Check out our latest analysis for Jiangxi Hongdu Aviation Industry

We don't think that Jiangxi Hongdu Aviation Industry's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. 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.

In the last three years Jiangxi Hongdu Aviation Industry saw its revenue shrink by 7.1% per year. That is not a good result. The share price decline of 14% compound, over three years, is understandable given the company doesn't have profits to boast of, and revenue is moving in the wrong direction. Having said that, if growth is coming in the future, now may be the low ebb for the company. We don't generally like to own companies that lose money and can't grow revenues. But any company is worth looking at when it makes a maiden profit.

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

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

A Different Perspective

While the broader market lost about 11% in the twelve months, Jiangxi Hongdu Aviation Industry shareholders did even worse, losing 19% (even including dividends). 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. Longer term investors wouldn't be so upset, since they would have made 7%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Jiangxi Hongdu Aviation Industry better, we need to consider many other factors. Take risks, for example - Jiangxi Hongdu Aviation Industry has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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.