Further weakness as Shandong Molong Petroleum Machinery (HKG:568) drops 13% this week, taking three-year losses to 87%

Every investor on earth makes bad calls sometimes. But really bad investments should be rare. So spare a thought for the long term shareholders of Shandong Molong Petroleum Machinery Company Limited (HKG:568); the share price is down a whopping 87% in the last three years. That would certainly shake our confidence in the decision to own the stock. The more recent news is of little comfort, with the share price down 50% in a year. Furthermore, it's down 41% in about a quarter. That's not much fun for holders. 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 Shandong Molong Petroleum Machinery has shed HK$128m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for Shandong Molong Petroleum Machinery

Shandong Molong Petroleum Machinery 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. Shareholders of unprofitable companies usually desire strong revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

Over the last three years, Shandong Molong Petroleum Machinery's revenue dropped 32% per year. That's definitely a weaker result than most pre-profit companies report. The swift share price decline at an annual compound rate of 23%, reflects this weak fundamental performance. We prefer leave it to clowns to try to catch falling knives, like this stock. It's worth remembering that investors call buying a steeply falling share price 'catching a falling knife' because it is a dangerous pass time.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

This free interactive report on Shandong Molong Petroleum Machinery's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

While the broader market gained around 10.0% in the last year, Shandong Molong Petroleum Machinery shareholders lost 50%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 3% 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. Even so, be aware that Shandong Molong Petroleum Machinery is showing 2 warning signs in our investment analysis , and 1 of those is potentially serious...

Of course Shandong Molong Petroleum Machinery may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.