Jikai Equipment Manufacturing (SZSE:002691 investor one-year losses grow to 37% as the stock sheds CN¥211m this past week

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. That downside risk was realized by Jikai Equipment Manufacturing Co., Ltd. (SZSE:002691) shareholders over the last year, as the share price declined 37%. That contrasts poorly with the market return of 7.2%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 8.4% in three years. More recently, the share price has dropped a further 29% in a month.

Since Jikai Equipment Manufacturing has shed CN¥211m 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 Jikai Equipment Manufacturing

Given that Jikai Equipment Manufacturing 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.

Jikai Equipment Manufacturing's revenue didn't grow at all in the last year. In fact, it fell 15%. That looks pretty grim, at a glance. Shareholders have seen the share price drop 37% in that time. What would you expect when revenue is falling, and it doesn't make a profit? It's hard to escape the conclusion that buyers must envision either growth down the track, cost cutting, or both.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized 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. This free interactive report on Jikai Equipment Manufacturing's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

While the broader market gained around 7.2% in the last year, Jikai Equipment Manufacturing shareholders lost 37%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 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. It's always interesting to track share price performance over the longer term. But to understand Jikai Equipment Manufacturing better, we need to consider many other factors. For example, we've discovered 1 warning sign for Jikai Equipment Manufacturing that you should be aware of before investing here.

Of course Jikai Equipment Manufacturing 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 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.