Shareholders in Guangdong Huafeng New Energy TechnologyLtd (SZSE:002806) have lost 58%, as stock drops 16% this past week

Statistically speaking, long term investing is a profitable endeavour. But that doesn't mean long term investors can avoid big losses. Zooming in on an example, the Guangdong Huafeng New Energy Technology Co.,Ltd. (SZSE:002806) share price dropped 58% in the last half decade. That's not a lot of fun for true believers. And it's not just long term holders hurting, because the stock is down 44% in the last year. Even worse, it's down 22% in about a month, which isn't fun at all.

Since Guangdong Huafeng New Energy TechnologyLtd has shed CN¥253m 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 Guangdong Huafeng New Energy TechnologyLtd

Guangdong Huafeng New Energy TechnologyLtd wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. 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 half decade, Guangdong Huafeng New Energy TechnologyLtd saw its revenue increase by 2.5% per year. That's far from impressive given all the money it is losing. This lacklustre growth has no doubt fueled the loss of 10% per year, in that time. We want to see an acceleration of revenue growth (or profits) before showing much interest in this one. When a stock falls hard like this, some investors like to add the company to a watchlist (in case the business recovers, longer term).

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

Take a more thorough look at Guangdong Huafeng New Energy TechnologyLtd's financial health with this free report on its balance sheet.

A Different Perspective

While the broader market lost about 10% in the twelve months, Guangdong Huafeng New Energy TechnologyLtd shareholders did even worse, losing 44%. 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 10% 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 Guangdong Huafeng New Energy TechnologyLtd better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Guangdong Huafeng New Energy TechnologyLtd (at least 2 which are a bit concerning) , and understanding them should be part of your investment process.

We will like Guangdong Huafeng New Energy TechnologyLtd better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider 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.