Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. That downside risk was realized by Guizhou Chitianhua Co.,Ltd. (SHSE:600227) shareholders over the last year, as the share price declined 13%. That's well below the market decline of 6.4%. Zooming out, the stock is down 11% in the last three years. Shareholders have had an even rougher run lately, with the share price down 10% in the last 90 days. But this could be related to the weak market, which is down 12% in the same period.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

Check out our latest analysis for Guizhou ChitianhuaLtd

Guizhou ChitianhuaLtd isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

In just one year Guizhou ChitianhuaLtd saw its revenue fall by 12%. That looks pretty grim, at a glance. The stock price has languished lately, falling 13% in a year. What would you expect when revenue is falling, and it doesn't make a profit? We think most holders must believe revenue growth will improve, or else costs will decline.

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

This free interactive report on Guizhou ChitianhuaLtd'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 Guizhou ChitianhuaLtd shareholders are down 13% for the year. Unfortunately, that's worse than the broader market decline of 6.4%. 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 1.6% 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. 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. For example, we've discovered 1 warning sign for Guizhou ChitianhuaLtd that you should be aware of before investing here.

But note: Guizhou ChitianhuaLtd may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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