Further weakness as Ningxia Zhongke Biotechnology (SHSE:600165) drops 10% this week, taking three-year losses to 83%

While it may not be enough for some shareholders, we think it is good to see the Ningxia Zhongke Biotechnology Co., Ltd (SHSE:600165) share price up 14% in a single quarter. But the last three years have seen a terrible decline. Indeed, the share price is down a whopping 83% in the last three years. So we're relieved for long term holders to see a bit of uplift. Only time will tell if the company can sustain the turnaround. We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.

With the stock having lost 10% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

Check out our latest analysis for Ningxia Zhongke Biotechnology

Because Ningxia Zhongke Biotechnology 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 fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

In the last three years Ningxia Zhongke Biotechnology saw its revenue shrink by 10% per year. That is not a good result. Having said that the 22% annualized share price decline highlights the risk of investing in unprofitable companies. We're generally averse to companies with declining revenues, but we're not alone in that. Don't let a share price decline ruin your calm. You make better decisions when you're calm.

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

It's probably worth noting that the CEO is paid less than the median at similar sized 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 Ningxia Zhongke Biotechnology's earnings, revenue and cash flow.

A Different Perspective

Investors in Ningxia Zhongke Biotechnology had a tough year, with a total loss of 32%, against a market gain of about 8.8%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 8% over the last half decade. 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. 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 for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Ningxia Zhongke Biotechnology , and understanding them should be part of your investment process.

But note: Ningxia Zhongke Biotechnology may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.