It might be of some concern to shareholders to see the Xiamen Zhongchuang Environmental Technology Co., Ltd (SZSE:300056) share price down 16% in the last month. But that doesn't change the fact that the returns over the last three years have been pleasing. In fact, the company's share price bested the return of its market index in that time, posting a gain of 55%.
While this past week has detracted from the company's three-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.
Xiamen Zhongchuang Environmental Technology 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.
Xiamen Zhongchuang Environmental Technology actually saw its revenue drop by 36% per year over three years. Despite the lack of revenue growth, the stock has returned 16%, compound, over three years. Unless the company is going to make profits soon, we would be pretty cautious about it.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
While it's never nice to take a loss, Xiamen Zhongchuang Environmental Technology shareholders can take comfort that their trailing twelve month loss of 19% wasn't as bad as the market loss of around 24%. Longer term investors wouldn't be so upset, since they would have made 7%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. It's always interesting to track share price performance over the longer term. But to understand Xiamen Zhongchuang Environmental Technology better, we need to consider many other factors. Even so, be aware that Xiamen Zhongchuang Environmental Technology is showing 2 warning signs in our investment analysis , and 1 of those is a bit unpleasant...
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.