Investing in stocks inevitably means buying into some companies that perform poorly. But long term Chongqing Lummy Pharmaceutical Co., Ltd. (SZSE:300006) shareholders have had a particularly rough ride in the last three year. Unfortunately, they have held through a 55% decline in the share price in that time. Even worse, it's down 11% in about a month, which isn't fun at all. However, we note the price may have been impacted by the broader market, which is down 5.9% in the same time period.

Since Chongqing Lummy Pharmaceutical has shed CN¥370m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

See our latest analysis for Chongqing Lummy Pharmaceutical

Because Chongqing Lummy Pharmaceutical made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last three years Chongqing Lummy Pharmaceutical saw its revenue shrink by 26% per year. That's definitely a weaker result than most pre-profit companies report. With no profits and falling revenue it is no surprise that investors have been dumping the stock, pushing the price down by 16% per year over that time. Bagholders or 'baggies' are people who buy more of a stock as the price collapses. They are then left 'holding the bag' if the shares turn out to be worthless. After losing money on a declining business with falling stock price, we always consider whether eager bagholders are still offering us a reasonable exit price.

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

The total return of 6.4% received by Chongqing Lummy Pharmaceutical shareholders over the last year isn't far from the market return of -6.6%. The silver lining is that longer term investors would have made a total return of 0.8% per year over half a decade. If the stock price has been impacted by changing sentiment, rather than deteriorating business conditions, it could spell opportunity. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Chongqing Lummy Pharmaceutical , and understanding them should be part of your investment process.

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.