Ruihe Data Technology Holdings (HKG:3680) shareholders are up 30% this past week, but still in the red over the last three years

This week we saw the Ruihe Data Technology Holdings Limited (HKG:3680) share price climb by 30%. But that is meagre solace in the face of the shocking decline over three years. In that time the share price has melted like a snowball in the desert, down 84%. So it sure is nice to see a bit of an improvement. The thing to think about is whether the business has really turned around. While a drop like that is definitely a body blow, money isn't as important as health and happiness.

On a more encouraging note the company has added HK$178m to its market cap in just the last 7 days, so let's see if we can determine what's driven the three-year loss for shareholders.

Check out our latest analysis for Ruihe Data Technology Holdings

Ruihe Data Technology Holdings 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 fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

Over three years, Ruihe Data Technology Holdings grew revenue at 0.4% per year. Given it's losing money in pursuit of growth, we are not really impressed with that. But the share price crash at 23% per year does seem a bit harsh! We generally don't try to 'catch the falling knife'. Of course, revenue growth is nice but generally speaking the lower the profits, the riskier the business - and this business isn't making steady profits.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

A Different Perspective

While the broader market gained around 23% in the last year, Ruihe Data Technology Holdings shareholders lost 17%. 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 6% 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that Ruihe Data Technology Holdings is showing 3 warning signs in our investment analysis , and 2 of those make us uncomfortable...

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of undervalued small cap 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.