For many investors, the main point of stock picking is to generate higher returns than the overall market. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term COFCO Joycome Foods Limited (HKG:1610) shareholders have had that experience, with the share price dropping 38% in three years, versus a market decline of about 18%. More recently, the share price has dropped a further 13% in a month. But this could be related to poor market conditions -- stocks are down 6.2% in the same time.

Since COFCO Joycome Foods has shed HK$412m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

Because COFCO Joycome Foods made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. When a company doesn't make profits, we'd generally hope to see good revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

In the last three years COFCO Joycome Foods saw its revenue shrink by 15% per year. That means its revenue trend is very weak compared to other loss making companies. With revenue in decline, the share price decline of 11% per year is hardly undeserved. The key question now is whether the company has the capacity to fund itself to profitability, without more cash. The company will need to return to revenue growth as quickly as possible, if it wants to see some enthusiasm from investors.

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

If you are thinking of buying or selling COFCO Joycome Foods stock, you should check out this FREE detailed report on its balance sheet.

A Dividend Lost

It's important to keep in mind that we've been talking about the share price returns, which don't include dividends, while the total shareholder return does. Many would argue the TSR gives a more complete picture of the value a stock brings to its holders. Over the last 3 years, COFCO Joycome Foods generated a TSR of -29%, which is, of course, better than the share price return. Even though the company isn't paying dividends at the moment, it has done in the past.

A Different Perspective

While the broader market gained around 3.0% in the last year, COFCO Joycome Foods shareholders lost 3.2%. 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 3% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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

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