Shareholders in LVGEM (China) Real Estate Investment (HKG:95) have lost 66%, as stock drops 19% this past week

This month, we saw the LVGEM (China) Real Estate Investment Company Limited (HKG:95) up an impressive 32%. But that doesn't change the fact that the returns over the last half decade have been disappointing. In that time the share price has delivered a rude shock to holders, who find themselves down 68% after a long stretch. So we're hesitant to put much weight behind the short term increase. Of course, this could be the start of a turnaround.

Since LVGEM (China) Real Estate Investment has shed HK$918m 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 LVGEM (China) Real Estate Investment

LVGEM (China) Real Estate Investment 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. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last five years LVGEM (China) Real Estate Investment saw its revenue shrink by 14% per year. That's definitely a weaker result than most pre-profit companies report. It seems appropriate, then, that the share price slid about 11% annually during that time. We don't generally like to own companies that lose money and don't grow revenues. You might be better off spending your money on a leisure activity. This looks like a really risky stock to buy, at a glance.

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

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free report showing analyst forecasts should help you form a view on LVGEM (China) Real Estate Investment

A Different Perspective

While the broader market gained around 8.8% in the last year, LVGEM (China) Real Estate Investment shareholders lost 46%. 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 11% 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. Case in point: We've spotted 2 warning signs for LVGEM (China) Real Estate Investment you should be aware of, and 1 of them is concerning.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Hong Kong exchanges.

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

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.