Investors can approximate the average market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Investors in Shouhang High-Tech Energy Co., Ltd. (SZSE:002665) have tasted that bitter downside in the last year, as the share price dropped 45%. That's disappointing when you consider the market declined 9.4%. The silver lining (for longer term investors) is that the stock is still 6.8% higher than it was three years ago. Shareholders have had an even rougher run lately, with the share price down 19% in the last 90 days.

Since Shouhang High-Tech Energy has shed CN¥464m 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 Shouhang High-Tech Energy

Shouhang High-Tech Energy 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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. 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.

Shouhang High-Tech Energy grew its revenue by 47% over the last year. That's a strong result which is better than most other loss making companies. Given the revenue growth, the share price drop of 45% seems quite harsh. Our sympathies to shareholders who are now underwater. On the bright side, if this company is moving profits in the right direction, top-line growth like that could be an opportunity.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

This free interactive report on Shouhang High-Tech Energy's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

Shouhang High-Tech Energy shareholders are down 45% for the year, falling short of the market return. The market shed around 9.4%, no doubt weighing on the stock price. Investors are up over three years, booking 2.2% per year, much better than the more recent returns. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. It's always interesting to track share price performance over the longer term. But to understand Shouhang High-Tech Energy better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Shouhang High-Tech Energy , and understanding them should be part of your investment process.

Of course Shouhang High-Tech Energy may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.