North China Pharmaceutical Company.Ltd (SHSE:600812 shareholders incur further losses as stock declines 5.8% this week, taking three-year losses to 64%

Investing in stocks inevitably means buying into some companies that perform poorly. But long term North China Pharmaceutical Company.Ltd (SHSE:600812) shareholders have had a particularly rough ride in the last three year. Sadly for them, the share price is down 64% in that time. And the ride hasn't got any smoother in recent times over the last year, with the price 26% lower in that time. Even worse, it's down 18% in about a month, which isn't fun at all.

If the past week is anything to go by, investor sentiment for North China Pharmaceutical Company.Ltd isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

See our latest analysis for North China Pharmaceutical Company.Ltd

While North China Pharmaceutical Company.Ltd made a small profit, in the last year, we think that the market is probably more focussed on the top line growth at the moment. 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.

In the last three years North China Pharmaceutical Company.Ltd saw its revenue shrink by 3.1% per year. That's not what investors generally want to see. The share price decline of 18% compound, over three years, is understandable given the company doesn't have profits to boast of, and revenue is moving in the wrong direction. Of course, it's the future that will determine whether today's price is a good one. We don't generally like to own companies that lose money and can't grow revenues. But any company is worth looking at when it makes a maiden profit.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free interactive report on North China Pharmaceutical Company.Ltd'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 lost about 14% in the twelve months, North China Pharmaceutical Company.Ltd shareholders did even worse, losing 26% (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 1.4% 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. Take risks, for example - North China Pharmaceutical Company.Ltd has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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.

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