It is doubtless a positive to see that the Foshan Yowant Technology Co.,Ltd (SZSE:002291) share price has gained some 60% in the last three months. But that is small recompense for the exasperating returns over three years. Tragically, the share price declined 61% in that time. Some might say the recent bounce is to be expected after such a bad drop. After all, could be that the fall was overdone.

Since Foshan Yowant TechnologyLtd has shed CN¥1.3b from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

Foshan Yowant TechnologyLtd wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Shareholders of unprofitable companies usually desire strong revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

Over three years, Foshan Yowant TechnologyLtd grew revenue at 23% per year. That is faster than most pre-profit companies. The share price has moved in quite the opposite direction, down 17% over that time, a bad result. It seems likely that the market is worried about the continual losses. But a share price drop of that magnitude could well signal that the market is overly negative on the stock.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

If you are thinking of buying or selling Foshan Yowant TechnologyLtd stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

Investors in Foshan Yowant TechnologyLtd had a tough year, with a total loss of 18%, against a market gain of about 12%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 9% 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. Even so, be aware that Foshan Yowant TechnologyLtd is showing 1 warning sign in our investment analysis , you should know about...

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Chinese exchanges.

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