Shareholders in Shanghai Xuerong BiotechnologyLtd (SZSE:300511) have lost 47%, as stock drops 16% this past week

It is doubtless a positive to see that the Shanghai Xuerong Biotechnology Co.,Ltd. (SZSE:300511) share price has gained some 37% in the last three months. But that cannot eclipse the less-than-impressive returns over the last three years. Truth be told the share price declined 47% in three years and that return, Dear Reader, falls short of what you could have got from passive investing with an index fund.

Since Shanghai Xuerong BiotechnologyLtd has shed CN¥374m 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 Shanghai Xuerong BiotechnologyLtd

Shanghai Xuerong BiotechnologyLtd 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. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

In the last three years, Shanghai Xuerong BiotechnologyLtd saw its revenue grow by 5.2% per year, compound. That's not a very high growth rate considering it doesn't make profits. Indeed, the stock dropped 14% over the last three years. Shareholders will probably be hoping growth picks up soon. But ultimately the key will be whether the company can become profitability.

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

This free interactive report on Shanghai Xuerong BiotechnologyLtd's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

Shanghai Xuerong BiotechnologyLtd shareholders are down 26% for the year, but the market itself is up 14%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 7% 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. For example, we've discovered 2 warning signs for Shanghai Xuerong BiotechnologyLtd that you should be aware of before investing here.

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.