The main aim of stock picking is to find the market-beating stocks. But the main game is to find enough winners to more than offset the losers So we wouldn't blame long term New Hope Liuhe Co.,Ltd. (SZSE:000876) shareholders for doubting their decision to hold, with the stock down 49% over a half decade. And it's not just long term holders hurting, because the stock is down 22% in the last year. Unfortunately the share price momentum is still quite negative, with prices down 9.7% in thirty days. But this could be related to poor market conditions -- stocks are down 6.8% in the same time.

It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.

While New Hope LiuheLtd made a small profit, in the last year, we think that the market is probably more focussed on the top line growth at the moment. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

In the last half decade, New Hope LiuheLtd saw its revenue increase by 14% per year. That's a fairly respectable growth rate. We doubt many shareholders are ok with the fact the share price has fallen 8% each year for half a decade. Those who bought back then clearly believed in stronger growth - and maybe even profits. The lesson is that if you buy shares in a money losing company you could end up losing money.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

We know that New Hope LiuheLtd has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling New Hope LiuheLtd stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

While the broader market lost about 16% in the twelve months, New Hope LiuheLtd shareholders did even worse, losing 22%. 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 8% 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. Case in point: We've spotted 2 warning signs for New Hope LiuheLtd you should be aware of.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com