While it may not be enough for some shareholders, we think it is good to see the Guangdong Guanghua Sci-Tech Co., Ltd. (SZSE:002741) share price up 15% in a single quarter. But that doesn't help the fact that the three year return is less impressive. Truth be told the share price declined 43% in three years and that return, Dear Reader, falls short of what you could have got from passive investing with an index fund.
Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.
Given that Guangdong Guanghua Sci-Tech 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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.
In the last three years Guangdong Guanghua Sci-Tech saw its revenue shrink by 3.1% per year. That's not what investors generally want to see. The stock has disappointed holders over the last three years, falling 13%, annualized. And with no profits, and weak revenue, are you surprised? Of course, sentiment could become too negative, and the company may actually be making progress to profitability.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
Guangdong Guanghua Sci-Tech shareholders are down 11% for the year, but the market itself is up 5.2%. 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. On the bright side, long term shareholders have made money, with a gain of 1.6% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. Case in point: We've spotted 1 warning sign for Guangdong Guanghua Sci-Tech you should be aware of.
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.
