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 North Huajin Chemical Industries Co.,Ltd (SZSE:000059) shareholders have had that experience, with the share price dropping 49% in three years, versus a market decline of about 32%. And the ride hasn't got any smoother in recent times over the last year, with the price 32% lower in that time. But it's up 9.5% in the last week.

On a more encouraging note the company has added CN¥560m to its market cap in just the last 7 days, so let's see if we can determine what's driven the three-year loss for shareholders.

We don't think that North Huajin Chemical IndustriesLtd's 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.

Over three years, North Huajin Chemical IndustriesLtd grew revenue at 8.0% per year. That's a pretty good rate of top-line growth. Shareholders have seen the share price fall at 14% per year, for three years. This implies the market had higher expectations of North Huajin Chemical IndustriesLtd. With revenue growing at a solid clip, now might be the time to focus on the possibility that it will have a brighter future.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

We know that North Huajin Chemical IndustriesLtd has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on North Huajin Chemical IndustriesLtd

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, North Huajin Chemical IndustriesLtd's TSR for the last 3 years was -45%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

We regret to report that North Huajin Chemical IndustriesLtd shareholders are down 31% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 19%. 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 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that North Huajin Chemical IndustriesLtd is showing 1 warning sign in our investment analysis , you should know about...

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.