Strong week for Kunming Longjin Pharmaceutical (SZSE:002750) shareholders doesn't alleviate pain of three-year loss

Kunming Longjin Pharmaceutical Co., Ltd. (SZSE:002750) shareholders should be happy to see the share price up 16% in the last week. But that doesn't change the fact that the returns over the last three years have been stomach churning. The share price has sunk like a leaky ship, down 88% in that time. Arguably, the recent bounce is to be expected after such a bad drop. Of course the real question is whether the business can sustain a turnaround. While a drop like that is definitely a body blow, money isn't as important as health and happiness.

While the stock has risen 16% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

See our latest analysis for Kunming Longjin Pharmaceutical

Because Kunming Longjin Pharmaceutical 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. When a company doesn't make profits, we'd generally hope to see good revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

In the last three years Kunming Longjin Pharmaceutical saw its revenue shrink by 86% per year. That means its revenue trend is very weak compared to other loss making companies. The swift share price decline at an annual compound rate of 23%, reflects this weak fundamental performance. Never forget that loss making companies with falling revenue can and do cause losses for everyday investors. There is a good reason that investors often describe buying a sharply falling stock price as 'trying to catch a falling knife'. Think about it.

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

Take a more thorough look at Kunming Longjin Pharmaceutical's financial health with this free report on its balance sheet.

A Different Perspective

Kunming Longjin Pharmaceutical shareholders are down 69% for the year, but the market itself is up 24%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 13% 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. 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. Take risks, for example - Kunming Longjin Pharmaceutical has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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.