Chongqing Lummy Pharmaceutical Co., Ltd. (SZSE:300006) shareholders will doubtless be very grateful to see the share price up 46% in the last quarter. But that doesn't change the fact that the returns over the last three years have been less than pleasing. Truth be told the share price declined 33% 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.

While Chongqing Lummy Pharmaceutical made a small profit, in the last year, we think that the market is probably more focussed on the top line growth at the moment. 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.

Over the last three years, Chongqing Lummy Pharmaceutical's revenue dropped 15% per year. That's definitely a weaker result than most pre-profit companies report. On the face of it we'd posit the share price fall of 10% compound, over three years is well justified by the fundamental deterioration. 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 below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

This free interactive report on Chongqing Lummy Pharmaceutical's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

We're pleased to report that Chongqing Lummy Pharmaceutical shareholders have received a total shareholder return of 24% over one year. Notably the five-year annualised TSR loss of 3% per year compares very unfavourably with the recent share price performance. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. It's always interesting to track share price performance over the longer term. But to understand Chongqing Lummy Pharmaceutical better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Chongqing Lummy Pharmaceutical (of which 1 is concerning!) 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.