If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. But the long term shareholders of Ocean's King Lighting Science & Technology Co., Ltd (SZSE:002724) have had an unfortunate run in the last three years. Regrettably, they have had to cope with a 70% drop in the share price over that period. And the ride hasn't got any smoother in recent times over the last year, with the price 37% lower in that time. Even worse, it's down 14% in about a month, which isn't fun at all.

With the stock having lost 9.7% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

We don't think that Ocean's King Lighting Science & Technology's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. It would be hard to believe in a more profitable future without growing revenues.

Over the last three years, Ocean's King Lighting Science & Technology's revenue dropped 10% per year. That's not what investors generally want to see. The share price fall of 19% (per year, over three years) is a stern reminder that money-losing companies are expected to grow revenue. This business clearly needs to grow revenues if it is to perform as investors hope. There's no more than a snowball's chance in hell that share price will head back to its old highs, in the short term.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

If you are thinking of buying or selling Ocean's King Lighting Science & Technology stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

While the broader market gained around 9.3% in the last year, Ocean's King Lighting Science & Technology shareholders lost 36% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 5% 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. For example, we've discovered 4 warning signs for Ocean's King Lighting Science & Technology (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

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.

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