The three-year underlying earnings growth at Dongguan Eontec (SZSE:300328) is promising, but the shareholders are still in the red over that time

For many investors, the main point of stock picking is to generate higher returns than the overall market. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Dongguan Eontec Co., Ltd. (SZSE:300328) shareholders have had that experience, with the share price dropping 39% in three years, versus a market decline of about 21%. And more recent buyers are having a tough time too, with a drop of 30% in the last year. The falls have accelerated recently, with the share price down 16% in the last three months.

With the stock having lost 12% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

View our latest analysis for Dongguan Eontec

We don't think that Dongguan Eontec's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

Over three years, Dongguan Eontec grew revenue at 22% per year. That is faster than most pre-profit companies. While its revenue increased, the share price dropped at a rate of 11% per year. That seems like an unlucky result for holders. It's possible that the prior share price assumed unrealistically high future growth. Before considering a purchase, investors should consider how quickly expenses are growing, relative to revenue.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

Take a more thorough look at Dongguan Eontec's financial health with this free report on its balance sheet.

A Different Perspective

We regret to report that Dongguan Eontec shareholders are down 30% for the year. Unfortunately, that's worse than the broader market decline of 9.6%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 6% per year over five years. 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. 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. Case in point: We've spotted 3 warning signs for Dongguan Eontec you should be aware of, and 1 of them is a bit unpleasant.

But note: Dongguan Eontec 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.