Shenyang Machine Tool Co., Ltd. (SZSE:000410) shareholders might be concerned after seeing the share price drop 12% in the last quarter. Looking further back, the stock has generated good profits over five years. After all, the share price is up a market-beating 44% in that time. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 16% decline over the last twelve months.

While this past week has detracted from the company's five-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

Given that Shenyang Machine Tool 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. It would be hard to believe in a more profitable future without growing revenues.

In the last 5 years Shenyang Machine Tool saw its revenue shrink by 5.4% per year. Even though revenue hasn't increased, the stock actually gained 8%, per year, during the same period. To us that suggests that there probably isn't a lot of correlation between the past revenue performance and the share price, but a closer look at analyst forecasts and the bottom line may well explain a lot.

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

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

The total return of 16% received by Shenyang Machine Tool shareholders over the last year isn't far from the market return of -16%. Longer term investors wouldn't be so upset, since they would have made 8%, each year, over five years. If the fundamental data remains strong, and the share price is simply down on sentiment, then this could be an opportunity worth investigating. It's always interesting to track share price performance over the longer term. But to understand Shenyang Machine Tool better, we need to consider many other factors. For example, we've discovered 2 warning signs for Shenyang Machine Tool (1 is potentially serious!) that you should be aware of before investing here.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are 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.