Shareholders in Shanghai Hongda New Material (SZSE:002211) have lost 43%, as stock drops 11% this past week

Shanghai Hongda New Material Co., Ltd. (SZSE:002211) shareholders will doubtless be very grateful to see the share price up 46% in the last quarter. But that doesn't change the fact that the returns over the last five years have been less than pleasing. You would have done a lot better buying an index fund, since the stock has dropped 43% in that half decade.

With the stock having lost 11% 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 Shanghai Hongda New Material

Because Shanghai Hongda New Material 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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

Over half a decade Shanghai Hongda New Material reduced its trailing twelve month revenue by 33% for each year. That's definitely a weaker result than most pre-profit companies report. It seems pretty reasonable to us that the share price dipped 7% per year in that time. This loss means the stock shareholders are probably pretty annoyed. It is possible for businesses to bounce back but as Buffett says, 'turnarounds seldom turn'.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Take a more thorough look at Shanghai Hongda New Material's financial health with this free report on its balance sheet.

A Different Perspective

Shanghai Hongda New Material shareholders are down 14% for the year, but the market itself is up 6.2%. 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 7% 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. You might want to assess this data-rich visualization of its 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.