This week we saw the Sanan Optoelectronics Co.,Ltd (SHSE:600703) share price climb by 28%. Meanwhile over the last three years the stock has dropped hard. Regrettably, the share price slid 61% in that period. So the improvement may be a real relief to some. While many would remain nervous, there could be further gains if the business can put its best foot forward.

While the last three years has been tough for Sanan OptoelectronicsLtd shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

We don't think that Sanan OptoelectronicsLtd's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

In the last three years, Sanan OptoelectronicsLtd saw its revenue grow by 7.5% per year, compound. That's not a very high growth rate considering it doesn't make profits. It's likely this weak growth has contributed to an annualised return of 17% for the last three years. When a stock falls hard like this, some investors like to add the company to a watchlist (in case the business recovers, longer term). Keep in mind it isn't unusual for good businesses to have a tough time or a couple of uninspiring years.

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

We know that Sanan OptoelectronicsLtd has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Sanan OptoelectronicsLtd will earn in the future (free profit forecasts).

A Different Perspective

Investors in Sanan OptoelectronicsLtd had a tough year, with a total loss of 19% (including dividends), against a market gain of about 3.3%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 1.9% 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - Sanan OptoelectronicsLtd has 1 warning sign we think you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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.