It's nice to see the Jilin Yatai (Group) Co., Ltd. (SHSE:600881) share price up 11% in a week. But that doesn't change the fact that the returns over the last half decade have been disappointing. The share price has failed to impress anyone , down a sizable 63% during that time. Some might say the recent bounce is to be expected after such a bad drop. But it could be that the fall was overdone.

On a more encouraging note the company has added CN¥357m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.

Jilin Yatai (Group) 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 the last five years Jilin Yatai (Group) saw its revenue shrink by 9.0% per 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 10% (annualized) in the same time period. It's fair to say most investors don't like to invest in loss making companies with falling revenue. This looks like a really risky stock to buy, at a glance.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

A Different Perspective

While the broader market lost about 19% in the twelve months, Jilin Yatai (Group) shareholders did even worse, losing 55%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 10% 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Jilin Yatai (Group) , and understanding them should be part of your investment process.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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