While GuangYuYuan Chinese Herbal Medicine Co., Ltd. (SHSE:600771) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 11% in the last quarter. But that doesn't change the fact that the returns over the last three years have been pleasing. To wit, the share price did better than an index fund, climbing 74% during that period.

In light of the stock dropping 8.5% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive three-year return.

See our latest analysis for GuangYuYuan Chinese Herbal Medicine

Because GuangYuYuan Chinese Herbal Medicine 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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

GuangYuYuan Chinese Herbal Medicine's revenue trended up 0.1% each year over three years. Considering the company is losing money, we think that rate of revenue growth is uninspiring. In that time the share price is up 20% per year, which is not unreasonable given the revenue growth. Ultimately, the important thing is whether the company is trending to profitability. In this sort of situation it can be worth putting the stock on your watchlist. If it can become profitable, then even moderate revenue growth could grow profits quickly.

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

Take a more thorough look at GuangYuYuan Chinese Herbal Medicine's financial health with this free report on its balance sheet.

A Different Perspective

The total return of 4.6% received by GuangYuYuan Chinese Herbal Medicine shareholders over the last year isn't far from the market return of -4.8%. The silver lining is that longer term investors would have made a total return of 4% per year over half a decade. If the fundamental data remains strong, and the share price is simply down on sentiment, then this could be an opportunity worth investigating. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with GuangYuYuan Chinese Herbal Medicine , and understanding them should be part of your investment process.

But note: GuangYuYuan Chinese Herbal Medicine may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.