Shareholders in Xiabuxiabu Catering Management (China) Holdings (HKG:520) have lost 84%, as stock drops 13% 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 Xiabuxiabu Catering Management (China) Holdings Co., Ltd. (HKG:520) investors who have held the stock for three years as it declined a whopping 85%. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. And over the last year the share price fell 66%, so we doubt many shareholders are delighted. The falls have accelerated recently, with the share price down 25% in the last three months. We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.

Since Xiabuxiabu Catering Management (China) Holdings has shed HK$434m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

See our latest analysis for Xiabuxiabu Catering Management (China) Holdings

Xiabuxiabu Catering Management (China) Holdings isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally expect 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 three years Xiabuxiabu Catering Management (China) Holdings saw its revenue shrink by 3.8% per year. That's not what investors generally want to see. The share price fall of 23% (per year, over three years) is a stern reminder that money-losing companies are expected to grow revenue. This business clearly needs to grow revenues if it is to perform as investors hope. There's no more than a snowball's chance in hell that share price will head back to its old highs, in the short term.

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

Xiabuxiabu Catering Management (China) Holdings is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for Xiabuxiabu Catering Management (China) Holdings in this interactive graph of future profit estimates.

A Different Perspective

We regret to report that Xiabuxiabu Catering Management (China) Holdings shareholders are down 66% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 7.0%. 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 12% 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. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.

If you are like me, then you will not want to miss this free list of growing companies 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 Hong Kong 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.