Further weakness as Shanghai DragonNet TechnologyLtd (SZSE:300245) drops 14% this week, taking five-year losses to 59%

Statistically speaking, long term investing is a profitable endeavour. But no-one is immune from buying too high. For example the Shanghai DragonNet Technology Co.,Ltd. (SZSE:300245) share price dropped 59% over five years. That's an unpleasant experience for long term holders. And we doubt long term believers are the only worried holders, since the stock price has declined 53% over the last twelve months. Shareholders have had an even rougher run lately, with the share price down 25% in the last 90 days.

Since Shanghai DragonNet TechnologyLtd has shed CN¥236m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

Check out our latest analysis for Shanghai DragonNet TechnologyLtd

Shanghai DragonNet TechnologyLtd wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. When a company doesn't make profits, we'd generally hope to see good revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

In the last half decade, Shanghai DragonNet TechnologyLtd saw its revenue increase by 5.3% per year. That's not a very high growth rate considering it doesn't make profits. It's likely this weak growth has contributed to an annualised return of 10% for the last five years. We want to see an acceleration of revenue growth (or profits) before showing much interest in this one. However, it's possible too many in the market will ignore it, and there may be an opportunity if it starts to recover down the track.

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

This free interactive report on Shanghai DragonNet TechnologyLtd's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

We regret to report that Shanghai DragonNet TechnologyLtd shareholders are down 53% for the year. Unfortunately, that's worse than the broader market decline of 10%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 10% per year over five years. 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. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Shanghai DragonNet TechnologyLtd (of which 1 doesn't sit too well with us!) you should know about.

We will like Shanghai DragonNet TechnologyLtd better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider 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.