Market is not liking Huafu Fashion's (SZSE:002042) earnings decline as stock retreats 8.4% this week

The main aim of stock picking is to find the market-beating stocks. But in any portfolio, there will be mixed results between individual stocks. So we wouldn't blame long term Huafu Fashion Co., Ltd. (SZSE:002042) shareholders for doubting their decision to hold, with the stock down 51% over a half decade. Shareholders have had an even rougher run lately, with the share price down 29% in the last 90 days. However, one could argue that the price has been influenced by the general market, which is down 12% in the same timeframe.

Since Huafu Fashion has shed CN¥466m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for Huafu Fashion

While Huafu Fashion made a small profit, in the last year, we think that the market is probably more focussed on the top line growth at the moment. 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 five years Huafu Fashion saw its revenue shrink by 1.2% per year. While far from catastrophic that is not good. With neither profit nor revenue growth, the loss of 9% per year doesn't really surprise us. We don't think anyone is rushing to buy this stock. Ultimately, it may be worth watching - should revenue pick up, the share price might follow.

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

We know that Huafu Fashion has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Huafu Fashion

What About The Total Shareholder Return (TSR)?

Investors should note that there's a difference between Huafu Fashion's total shareholder return (TSR) and its share price change, which we've covered above. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Huafu Fashion's TSR of was a loss of 45% for the 5 years. That wasn't as bad as its share price return, because it has paid dividends.

A Different Perspective

While it's never nice to take a loss, Huafu Fashion shareholders can take comfort that their trailing twelve month loss of 0.6% wasn't as bad as the market loss of around 19%. Of far more concern is the 8% p.a. loss served to shareholders over the last five years. While the losses are slowing we doubt many shareholders are happy with the stock. 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. For example, we've discovered 2 warning signs for Huafu Fashion (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

Of course Huafu Fashion 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.