Ideally, your overall portfolio should beat the market average. But the main game is to find enough winners to more than offset the losers At this point some shareholders may be questioning their investment in Jihua Group Corporation Limited (SHSE:601718), since the last five years saw the share price fall 17%.
Since Jihua Group has shed CN¥659m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.
See our latest analysis for Jihua Group
We don't think that Jihua Group's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.
In the last five years Jihua Group saw its revenue shrink by 11% per year. That's definitely a weaker result than most pre-profit companies report. It seems pretty reasonable to us that the share price dipped 3% per year in that time. This loss means the stock shareholders are probably pretty annoyed. Risk averse investors probably wouldn't like this one much.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We know that Jihua Group has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Jihua Group's financial health with this free report on its balance sheet.
A Different Perspective
Jihua Group shareholders are down 6.3% over twelve months (even including dividends), which isn't far from the market return of -6.4%. So last year was actually even worse than the last five years, which cost shareholders 3% per year. Weak performance over the long term usually destroys market confidence in a stock, but bargain hunters may want to take a closer look for signs of a turnaround. 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. Take risks, for example - Jihua Group has 2 warning signs we think you should be aware of.
We will like Jihua Group better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
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.