These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But in any given year a good portion of stocks will fall short of that. One such example is Qingdao Doublestar Co.,Ltd (SZSE:000599), which saw its share price fall 32% over a year, against a market decline of 28%. At least the damage isn't so bad if you look at the last three years, since the stock is down 20% in that time. The last month has also been disappointing, with the stock slipping a further 34%. But this could be related to poor market conditions -- stocks are down 15% in the same time.

With the stock having lost 25% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

Qingdao DoublestarLtd 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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

Qingdao DoublestarLtd grew its revenue by 13% over the last year. That's not a very high growth rate considering it doesn't make profits. Given this lacklustre revenue growth, the share price drop of 32% seems pretty appropriate. In a hot market it's easy to forget growth is the life-blood of a loss making company. But if you buy a loss making company then you could become a loss making investor.

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

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

A Different Perspective

We regret to report that Qingdao DoublestarLtd shareholders are down 32% for the year. Unfortunately, that's worse than the broader market decline of 28%. 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 4% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Qingdao DoublestarLtd , and understanding them should be part of your investment process.

Of course Qingdao DoublestarLtd 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 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.