Shanghai TianchenLtd (SHSE:600620) shareholders have lost 57% over 1 year, earnings decline likely the culprit

Shanghai Tianchen Co.,Ltd (SHSE:600620) shareholders should be happy to see the share price up 15% in the last month. But that's not enough to compensate for the decline over the last twelve months. During that time the share price has sank like a stone, descending 57%. Some might say the recent bounce is to be expected after such a bad drop. Of course, it could be that the fall was overdone.

After losing 14% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

See our latest analysis for Shanghai TianchenLtd

Given that Shanghai TianchenLtd 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.

Shanghai TianchenLtd's revenue didn't grow at all in the last year. In fact, it fell 29%. That looks pretty grim, at a glance. The share price drop of 57% is understandable given the company doesn't have profits to boast of. Having said that, if growth is coming in the future, the stock may have better days ahead. We have a natural aversion to companies that are losing money and shrinking revenue. But perhaps that is being too careful.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

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 the broader market lost about 0.6% in the twelve months, Shanghai TianchenLtd shareholders did even worse, losing 57% (even including dividends). 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 3% 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. 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 3 warning signs with Shanghai TianchenLtd (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.

But note: Shanghai TianchenLtd 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.