Investing in stocks comes with the risk that the share price will fall. And there's no doubt that ZHEJIANG NARADA POWER SOURCE Co. , Ltd. (SZSE:300068) stock has had a really bad year. In that relatively short period, the share price has plunged 50%. However, the longer term returns haven't been so bad, with the stock down 8.5% in the last three years. Shareholders have had an even rougher run lately, with the share price down 26% in the last 90 days.

With the stock having lost 4.5% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

We don't think that ZHEJIANG NARADA POWER SOURCE's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

In the last twelve months, ZHEJIANG NARADA POWER SOURCE increased its revenue by 3.1%. While that may seem decent it isn't great considering the company is still making a loss. It's likely this muted growth has contributed to the share price decline of 50% in the last year. We'd want to see evidence that future revenue growth will be stronger before getting too interested. When a stock falls hard like this, it can signal an over-reaction. Our preference is to wait for a fundamental improvements before buying, but now could be a good time for some research.

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

It is of course excellent to see how ZHEJIANG NARADA POWER SOURCE has grown profits over the years, but the future is more important for shareholders. 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 ZHEJIANG NARADA POWER SOURCE shareholders are down 50% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 13%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 3% over the last half decade. 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. To that end, you should learn about the 3 warning signs we've spotted with ZHEJIANG NARADA POWER SOURCE (including 2 which are concerning) .

We will like ZHEJIANG NARADA POWER SOURCE better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) 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.

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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.