You can invest in an index fund if you want to make sure your returns approximately match the overall market. In contrast individual stocks will provide a wide range of possible returns, and may fall short. For example, the North Chemical Industries Co., Ltd. (SZSE:002246) share price fell 19% in the last year, slightly below the market decline of around 17%. On the bright side, the stock is actually up 1.2% in the last three years. The last month has also been disappointing, with the stock slipping a further 24%.

After losing 8.7% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

We don't think that North Chemical Industries' 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. It would be hard to believe in a more profitable future without growing revenues.

In just one year North Chemical Industries saw its revenue fall by 14%. That looks pretty grim, at a glance. The stock price has languished lately, falling 19% in a year. What would you expect when revenue is falling, and it doesn't make a profit? It's hard to escape the conclusion that buyers must envision either growth down the track, cost cutting, or both.

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

We regret to report that North Chemical Industries shareholders are down 19% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 17%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 1.4% 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. 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. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for North Chemical Industries (of which 2 shouldn't be ignored!) you should know about.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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.

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