In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But every investor is virtually certain to have both over-performing and under-performing stocks. At this point some shareholders may be questioning their investment in Shenzhen Magic Design & Decoration Engineering Co., Ltd. (SZSE:002856), since the last five years saw the share price fall 48%. And some of the more recent buyers are probably worried, too, with the stock falling 35% in the last year. And the share price decline continued over the last week, dropping some 24%.

If the past week is anything to go by, investor sentiment for Shenzhen Magic Design & Decoration Engineering isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

Shenzhen Magic Design & Decoration Engineering wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. 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.

Over five years, Shenzhen Magic Design & Decoration Engineering grew its revenue at 3.6% per year. That's not a very high growth rate considering it doesn't make profits. Given the weak growth, the share price fall of 8% isn't particularly surprising. The key question is whether the company can make it to profitability, and beyond, without trouble. It could be worth putting it on your watchlist and revisiting when it makes its maiden profit.

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

If you are thinking of buying or selling Shenzhen Magic Design & Decoration Engineering stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

Investors in Shenzhen Magic Design & Decoration Engineering had a tough year, with a total loss of 35%, against a market gain of about 11%. 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 8% 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. Even so, be aware that Shenzhen Magic Design & Decoration Engineering is showing 2 warning signs in our investment analysis , you should know about...

Of course Shenzhen Magic Design & Decoration Engineering may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.