Further weakness as Lionhead Technology DevelopmentLtd (SHSE:600539) drops 11% this week, taking three-year losses to 21%

While not a mind-blowing move, it is good to see that the Lionhead Technology Development Co.,Ltd. (SHSE:600539) share price has gained 28% in the last three months. That doesn't really compensate for the lacklustre three-year returns. To be specific, the share price is a full 21% lower, while the market is down , with a return of (-19%)..

Since Lionhead Technology DevelopmentLtd has shed CN¥175m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

Check out our latest analysis for Lionhead Technology DevelopmentLtd

Given that Lionhead Technology DevelopmentLtd didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. When a company doesn't make profits, we'd generally hope to see good 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, Lionhead Technology DevelopmentLtd's revenue dropped 0.2% per year. That is not a good result. The stock has disappointed holders over the last three years, falling 7%, annualized. And with no profits, and weak revenue, are you surprised? Of course, sentiment could become too negative, and the company may actually be making progress to profitability.

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

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. This free interactive report on Lionhead Technology DevelopmentLtd's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

While the broader market gained around 6.1% in the last year, Lionhead Technology DevelopmentLtd shareholders lost 12%. 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 1.5% 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. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Lionhead Technology DevelopmentLtd , and understanding them should be part of your investment process.

Of course Lionhead Technology DevelopmentLtd 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.