Henan Dayou Energy (SHSE:600403) three-year losses have grown faster than shareholder returns have fallen, but the stock swells 10% this past week

It's nice to see the Henan Dayou Energy Co., Ltd (SHSE:600403) share price up 10% in a week. But that doesn't change the fact that the returns over the last three years have been less than pleasing. After all, the share price is down 38% in the last three years, significantly under-performing the market.

Although the past week has been more reassuring for shareholders, they're still in the red over the last three years, so let's see if the underlying business has been responsible for the decline.

Check out our latest analysis for Henan Dayou Energy

Because Henan Dayou Energy made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Shareholders of unprofitable companies usually desire strong revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

Over the last three years, Henan Dayou Energy's revenue dropped 18% per year. That's definitely a weaker result than most pre-profit companies report. With revenue in decline, the share price decline of 11% per year is hardly undeserved. It would probably be worth asking whether the company can fund itself to profitability. Of course, it is possible for businesses to bounce back from a revenue drop - but we'd want to see that before getting interested.

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

If you are thinking of buying or selling Henan Dayou Energy stock, you should check out this FREE detailed report on its balance sheet.

What About The Total Shareholder Return (TSR)?

Investors should note that there's a difference between Henan Dayou Energy's total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Its history of dividend payouts mean that Henan Dayou Energy's TSR, which was a 27% drop over the last 3 years, was not as bad as the share price return.

A Different Perspective

Investors in Henan Dayou Energy had a tough year, with a total loss of 14%, against a market gain of about 17%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 1.7% over the last half decade. 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Henan Dayou Energy you should know about.

Of course Henan Dayou Energy 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.

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

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.