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Some Nanjing Sinolife United (HKG:3332) Shareholders Have Taken A Painful 89% Share Price Drop

Simply Wall St

As every investor would know, not every swing hits the sweet spot. But really big losses can really drag down an overall portfolio. So consider, for a moment, the misfortune of Nanjing Sinolife United Company Limited (HKG:3332) investors who have held the stock for three years as it declined a whopping 89%. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. And more recent buyers are having a tough time too, with a drop of 50% in the last year. Furthermore, it's down 17% in about a quarter. That's not much fun for holders.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

See our latest analysis for Nanjing Sinolife United

Nanjing Sinolife United isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

Over the last three years, Nanjing Sinolife United's revenue dropped 4.0% per year. That is not a good result. Having said that the 52% annualized share price decline highlights the risk of investing in unprofitable companies. This business clearly needs to grow revenues if it is to perform as investors hope. Don't let a share price decline ruin your calm. You make better decisions when you're calm.

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

SEHK:3332 Income Statement, January 19th 2020

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on Nanjing Sinolife United's earnings, revenue and cash flow.

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between Nanjing Sinolife United's total shareholder return (TSR) and its share price change, which we've covered above. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Nanjing Sinolife United's TSR of was a loss of 88% for the 3 years. That wasn't as bad as its share price return, because it has paid dividends.

A Different Perspective

While the broader market gained around 9.8% in the last year, Nanjing Sinolife United shareholders lost 50%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 32% per year over five years. We realise that Buffett 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. It's always interesting to track share price performance over the longer term. But to understand Nanjing Sinolife United better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Nanjing Sinolife United (at least 1 which is concerning) , and understanding them should be part of your investment process.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.