In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Kangda New Materials (Group) Co., Ltd. (SZSE:002669) shareholders have had that experience, with the share price dropping 33% in three years, versus a market decline of about 23%. The more recent news is of little comfort, with the share price down 29% in a year. On top of that, the share price is down 17% in the last week.

With the stock having lost 17% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

While Kangda New Materials (Group) made a small profit, in the last year, we think that the market is probably more focussed on the top line growth at the moment. 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 three years, Kangda New Materials (Group) saw its revenue grow by 10% per year, compound. That's a fairly respectable growth rate. Shareholders have seen the share price fall at 10% per year, for three years. This implies the market had higher expectations of Kangda New Materials (Group). However, that's in the past now, and it's the future is more important - and the future looks brighter (based on revenue, anyway).

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

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

We regret to report that Kangda New Materials (Group) shareholders are down 28% for the year. Unfortunately, that's worse than the broader market decline of 12%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 5% 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. It's always interesting to track share price performance over the longer term. But to understand Kangda New Materials (Group) better, we need to consider many other factors. Even so, be aware that Kangda New Materials (Group) is showing 5 warning signs in our investment analysis , and 2 of those make us uncomfortable...

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.

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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.