Shanghai Lonyer Data Co., Ltd. (SHSE:603003) shareholders will doubtless be very grateful to see the share price up 58% in the last quarter. But that doesn't change the fact that the returns over the last year have been less than pleasing. The cold reality is that the stock has dropped 42% in one year, under-performing the market.

On a more encouraging note the company has added CN¥463m to its market cap in just the last 7 days, so let's see if we can determine what's driven the one-year loss for shareholders.

Given that Shanghai Lonyer Data didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. When a company doesn't make profits, we'd generally hope to see good 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.

Shanghai Lonyer Data's revenue didn't grow at all in the last year. In fact, it fell 54%. If you think that's a particularly bad result, you're statistically on the money Meanwhile, the share price dropped by 42%. We would want to see improvements in the core business, and diminishing losses, before getting too excited about this one.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

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

Shanghai Lonyer Data shareholders are down 41% for the year (even including dividends), but the market itself is up 11%. 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 3% per year over five years. 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. Take risks, for example - Shanghai Lonyer Data has 1 warning sign we think you should be aware of.

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.