Some stocks are best avoided. It hits us in the gut when we see fellow investors suffer a loss. Imagine if you held Jilin Zixin Pharmaceutical Industrial Co.,Ltd. (SZSE:002118) for half a decade as the share price tanked 81%. And some of the more recent buyers are probably worried, too, with the stock falling 44% in the last year. Furthermore, it's down 30% in about a quarter. That's not much fun for holders. While a drop like that is definitely a body blow, money isn't as important as health and happiness.
Since Jilin Zixin Pharmaceutical IndustrialLtd has shed CN¥448m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.
View our latest analysis for Jilin Zixin Pharmaceutical IndustrialLtd
Jilin Zixin Pharmaceutical IndustrialLtd isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Over half a decade Jilin Zixin Pharmaceutical IndustrialLtd reduced its trailing twelve month revenue by 42% for each year. That's definitely a weaker result than most pre-profit companies report. So it's not that strange that the share price dropped 13% per year in that period. We don't think this is a particularly promising picture. Ironically, that behavior could create an opportunity for the contrarian investor - but only if there are good reasons to predict a brighter future.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
Investors in Jilin Zixin Pharmaceutical IndustrialLtd had a tough year, with a total loss of 44%, against a market gain of about 7.4%. 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 13% 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. It's always interesting to track share price performance over the longer term. But to understand Jilin Zixin Pharmaceutical IndustrialLtd better, we need to consider many other factors. To that end, you should be aware of the 2 warning signs we've spotted with Jilin Zixin Pharmaceutical IndustrialLtd .
But note: Jilin Zixin Pharmaceutical IndustrialLtd may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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.