Statistically speaking, long term investing is a profitable endeavour. But unfortunately, some companies simply don't succeed. For example the Kangxin New Materials Co., Ltd (SHSE:600076) share price dropped 67% over five years. That is extremely sub-optimal, to say the least. And we doubt long term believers are the only worried holders, since the stock price has declined 41% over the last twelve months. Furthermore, it's down 33% in about a quarter. That's not much fun for holders.

Since Kangxin New Materials has shed CN¥645m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

Kangxin New Materials isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. 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.

Over half a decade Kangxin New Materials reduced its trailing twelve month revenue by 34% for each year. That's definitely a weaker result than most pre-profit companies report. Arguably, the market has responded appropriately to this business performance by sending the share price down 11% (annualized) in the same time period. We don't generally like to own companies that lose money and don't grow revenues. You might be better off spending your money on a leisure activity. This looks like a really risky stock to buy, at a glance.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

This free interactive report on Kangxin New Materials' balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

We regret to report that Kangxin New Materials shareholders are down 41% for the year. Unfortunately, that's worse than the broader market decline of 17%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 11% 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. It's always interesting to track share price performance over the longer term. But to understand Kangxin New Materials better, we need to consider many other factors. For example, we've discovered 1 warning sign for Kangxin New Materials that you should be aware of before investing here.

For those who like to find winning investments this free list of growing 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.

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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.