If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. Long term Hainan Haiyao Co., Ltd. (SZSE:000566) shareholders know that all too well, since the share price is down considerably over three years. Regrettably, they have had to cope with a 51% drop in the share price over that period. On top of that, the share price is down 7.7% in the last week.

Since Hainan Haiyao has shed CN¥493m 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 Hainan Haiyao

Given that Hainan Haiyao only made minimal earnings in the last twelve months, we'll focus on revenue to gauge its business development. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

In the last three years Hainan Haiyao saw its revenue shrink by 11% per year. That is not a good result. With revenue in decline, and profit but a dream, we can understand why the share price has been declining at 15% per year. Having said that, if growth is coming in the future, now may be the low ebb for the company. We'd be pretty wary of this one until it makes a profit, because we don't specialize in finding turnaround situations.

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

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

A Different Perspective

It's good to see that Hainan Haiyao has rewarded shareholders with a total shareholder return of 0.7% in the last twelve months. That certainly beats the loss of about 2% per year over the last half decade. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the 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. For example, we've discovered 1 warning sign for Hainan Haiyao that you should be aware of before investing here.

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 Chinese 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.