This week we saw the Dongguan Eontec Co., Ltd. (SZSE:300328) share price climb by 16%. But that doesn't help the fact that the three year return is less impressive. 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.
While the stock has risen 16% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.
Given that Dongguan Eontec only made minimal earnings in the last twelve months, we'll focus on revenue to gauge its business development. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. It would be hard to believe in a more profitable future without growing revenues.
Over three years, Dongguan Eontec grew revenue at 25% per year. That's well above most other pre-profit companies. While its revenue increased, the share price dropped at a rate of 10% per year. That seems like an unlucky result for holders. It's possible that the prior share price assumed unrealistically high future growth. Before considering a purchase, investors should consider how quickly expenses are growing, relative to revenue.
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 Dongguan Eontec's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
While the broader market lost about 17% in the twelve months, Dongguan Eontec shareholders did even worse, losing 25%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 4% 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 3 warning signs for Dongguan Eontec (2 are potentially serious) that you should be aware of.
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.