For many investors, the main point of stock picking is to generate higher returns than the overall market. 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 Shandong Longda Meishi Co., Ltd. (SZSE:002726) shareholders have had that experience, with the share price dropping 45% in three years, versus a market decline of about 27%. On top of that, the share price is down 9.3% in the last week. However, this move may have been influenced by the broader market, which fell 5.6% in that time.

Since Shandong Longda Meishi has shed CN¥820m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

Check out our latest analysis for Shandong Longda Meishi

Given that Shandong Longda Meishi didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. When a company doesn't make profits, we'd generally expect 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 Shandong Longda Meishi saw its revenue shrink by 19% per year. That's definitely a weaker result than most pre-profit companies report. With revenue in decline, the share price decline of 13% per year is hardly undeserved. It would probably be worth asking whether the company can fund itself to profitability. Of course, it is possible for businesses to bounce back from a revenue drop - but we'd want to see that before getting interested.

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

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. If you are thinking of buying or selling Shandong Longda Meishi stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

While it's never nice to take a loss, Shandong Longda Meishi shareholders can take comfort that their trailing twelve month loss of 16% wasn't as bad as the market loss of around 21%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 5% for each year. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. It's always interesting to track share price performance over the longer term. But to understand Shandong Longda Meishi better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Shandong Longda Meishi , and understanding them should be part of your investment process.

But note: Shandong Longda Meishi may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.