Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Investors in Lisheng Sports (Shanghai) Co.,Ltd (SZSE:002858) have tasted that bitter downside in the last year, as the share price dropped 50%. That contrasts poorly with the market decline of 17%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 22% in three years. Shareholders have had an even rougher run lately, with the share price down 32% in the last 90 days.

With the stock having lost 18% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

Lisheng Sports (Shanghai)Ltd 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 desire strong revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

Lisheng Sports (Shanghai)Ltd grew its revenue by 57% over the last year. That's well above most other pre-profit companies. The share price drop of 50% over twelve months would be considered disappointing by many, so you might argue the company is getting little credit for its impressive revenue growth. On the bright side, if this company is moving profits in the right direction, top-line growth like that could be an opportunity.

You can see below how earnings and revenue have changed over time (discover 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 Lisheng Sports (Shanghai)Ltd shareholders are down 50% for the year. Unfortunately, that's worse than the broader market decline of 17%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 7% 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. It's always interesting to track share price performance over the longer term. But to understand Lisheng Sports (Shanghai)Ltd better, we need to consider many other factors. Take risks, for example - Lisheng Sports (Shanghai)Ltd has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

We will like Lisheng Sports (Shanghai)Ltd better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

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.