NanJi E-Commerce (SZSE:002127) earnings and shareholder returns have been trending downwards for the last three years, but the stock grows 7.9% this past week

It's not possible to invest over long periods without making some bad investments. But you have a problem if you face massive losses more than once in a while. So consider, for a moment, the misfortune of NanJi E-Commerce Co., LTD (SZSE:002127) investors who have held the stock for three years as it declined a whopping 73%. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. And the ride hasn't got any smoother in recent times over the last year, with the price 32% lower in that time. Furthermore, it's down 11% in about a quarter. That's not much fun for holders. However, one could argue that the price has been influenced by the general market, which is down 11% in the same timeframe.

While the stock has risen 7.9% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

Check out our latest analysis for NanJi E-Commerce

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During five years of share price growth, NanJi E-Commerce moved from a loss to profitability. We would usually expect to see the share price rise as a result. So given the share price is down it's worth checking some other metrics too.

We think that the revenue decline over three years, at a rate of 18% per year, probably had some shareholders looking to sell. After all, if revenue keeps shrinking, it may be difficult to find earnings growth in the future.

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

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

While the broader market lost about 20% in the twelve months, NanJi E-Commerce shareholders did even worse, losing 30% (even including dividends). 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 11% 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. To that end, you should be aware of the 2 warning signs we've spotted with NanJi E-Commerce .

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com