Investors can approximate the average market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in GuoChuang Software Co.,Ltd. (SZSE:300520) have tasted that bitter downside in the last year, as the share price dropped 29%. That's disappointing when you consider the market declined 16%. Zooming out, the stock is down 27% in the last three years. Even worse, it's down 14% in about a month, which isn't fun at all. But this could be related to poor market conditions -- stocks are down 6.9% in the same time.

Since GuoChuang SoftwareLtd has shed CN¥508m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

Given that GuoChuang SoftwareLtd 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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. 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.

In just one year GuoChuang SoftwareLtd saw its revenue fall by 12%. That looks pretty grim, at a glance. Shareholders have seen the share price drop 29% in that time. That seems pretty reasonable given the lack of both profits and revenue growth. It's hard to escape the conclusion that buyers must envision either growth down the track, cost cutting, or both.

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

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

While the broader market lost about 16% in the twelve months, GuoChuang SoftwareLtd shareholders did even worse, losing 29%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 1.7% 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. It's always interesting to track share price performance over the longer term. But to understand GuoChuang SoftwareLtd better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for GuoChuang SoftwareLtd (of which 1 doesn't sit too well with us!) you should know about.

But note: GuoChuang SoftwareLtd 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.

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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.

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