It is a pleasure to report that the Fujian Newchoice Pipe Technology Co., Ltd. (SZSE:300198) is up 52% in the last quarter. But don't envy holders -- looking back over 5 years the returns have been really bad. The share price has failed to impress anyone , down a sizable 56% during that time. So we're hesitant to put much weight behind the short term increase. We'd err towards caution given the long term under-performance.

On a more encouraging note the company has added CN¥402m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.

Because Fujian Newchoice Pipe Technology made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Shareholders of unprofitable companies usually desire strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

In the last five years Fujian Newchoice Pipe Technology saw its revenue shrink by 17% per year. That puts it in an unattractive cohort, to put it mildly. Arguably, the market has responded appropriately to this business performance by sending the share price down 9% (annualized) in the same time period. It's fair to say most investors don't like to invest in loss making companies with falling revenue. This looks like a really risky stock to buy, at a glance.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

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

Fujian Newchoice Pipe Technology shareholders are down 28% for the year, but the market itself is up 3.3%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 9% per year over five years. 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. Even so, be aware that Fujian Newchoice Pipe Technology is showing 2 warning signs in our investment analysis , and 1 of those is significant...

Of course Fujian Newchoice Pipe Technology 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.