Investors can approximate the average market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by Shenzhen Kexin Communication Technologies Co.,Ltd (SZSE:300565) shareholders over the last year, as the share price declined 45%. That's disappointing when you consider the market declined 19%. To make matters worse, the returns over three years have also been really disappointing (the share price is 38% lower than three years ago). And the share price decline continued over the last week, dropping some 16%.

Since Shenzhen Kexin Communication TechnologiesLtd has shed CN¥454m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

Shenzhen Kexin Communication TechnologiesLtd isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. 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 Shenzhen Kexin Communication TechnologiesLtd saw its revenue fall by 38%. That looks pretty grim, at a glance. Shareholders have seen the share price drop 45% in that time. That seems pretty reasonable given the lack of both profits and revenue growth. We think most holders must believe revenue growth will improve, or else costs will decline.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

Take a more thorough look at Shenzhen Kexin Communication TechnologiesLtd's financial health with this free report on its balance sheet.

A Different Perspective

While the broader market lost about 19% in the twelve months, Shenzhen Kexin Communication TechnologiesLtd shareholders did even worse, losing 45%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 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. 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 instance, we've identified 3 warning signs for Shenzhen Kexin Communication TechnologiesLtd (1 makes us a bit uncomfortable) that you should be aware of.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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