Shareholders in Henan Dayou Energy (SHSE:600403) have lost 42%, as stock drops 7.6% this past week

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. For example, the Henan Dayou Energy Co., Ltd (SHSE:600403) share price is down 42% in the last year. That falls noticeably short of the market decline of around 17%. Even if you look out three years, the returns are still disappointing, with the share price down33% in that time. Shareholders have had an even rougher run lately, with the share price down 31% in the last 90 days.

Since Henan Dayou Energy has shed CN¥478m 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 Henan Dayou Energy

Henan Dayou Energy isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

Henan Dayou Energy's revenue didn't grow at all in the last year. In fact, it fell 37%. That's not what investors generally want to see. The stock price has languished lately, falling 42% in a year. That seems pretty reasonable given the lack of both profits and revenue growth. We think most holders must believe revenue growth will improve, or else costs will decline.

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

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. Dive deeper into the earnings by checking this interactive graph of Henan Dayou Energy's earnings, revenue and cash flow.

A Different Perspective

While the broader market lost about 17% in the twelve months, Henan Dayou Energy shareholders did even worse, losing 42%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 5% 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. You could get a better understanding of Henan Dayou Energy's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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