Hongbo Co.,Ltd. (SZSE:002229) shareholders might be concerned after seeing the share price drop 11% in the last week. But in three years the returns have been great. In three years the stock price has launched 136% higher: a great result. So the recent fall in the share price should be viewed in that context. The fundamental business performance will ultimately dictate whether the top is in, or if this is a stellar buying opportunity.

Although HongboLtd has shed CN¥805m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

Given that HongboLtd 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. When a company doesn't make profits, we'd generally hope to see good 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.

In the last 3 years HongboLtd saw its revenue grow at 4.1% per year. Considering the company is losing money, we think that rate of revenue growth is uninspiring. In comparison, the share price rise of 33% per year over the last three years is pretty impressive. We'd need to take a closer look at the revenue and profit trends to see whether the improvements might justify that sort of increase. It seems likely that the market is pretty optimistic about HongboLtd, given it is losing money.

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

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 gained around 7.9% in the last year, HongboLtd shareholders lost 59%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 16% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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 2 warning signs for HongboLtd (1 doesn't sit too well with us) that you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Chinese exchanges.

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