Strong week for Jinlihua Electric (SZSE:300069) shareholders doesn't alleviate pain of three-year loss

Jinlihua Electric Co., Ltd. (SZSE:300069) shareholders should be happy to see the share price up 18% in the last week. But that cannot eclipse the less-than-impressive returns over the last three years. Truth be told the share price declined 46% in three years and that return, Dear Reader, falls short of what you could have got from passive investing with an index fund.

On a more encouraging note the company has added CN¥201m 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.

See our latest analysis for Jinlihua Electric

We don't think that Jinlihua Electric'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. It would be hard to believe in a more profitable future without growing revenues.

In the last three years, Jinlihua Electric saw its revenue grow by 0.3% per year, compound. Given it's losing money in pursuit of growth, we are not really impressed with that. The stock dropped 13% during that time. If revenue growth accelerates, we might see the share price bounce. But ultimately the key will be whether the company can become profitability.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

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 Jinlihua Electric shareholders are down 20% for the year. Unfortunately, that's worse than the broader market decline of 16%. 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 4% 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. 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. To that end, you should learn about the 2 warning signs we've spotted with Jinlihua Electric (including 1 which is a bit concerning) .

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.

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