Huanxi Media Group Limited (HKG:1003) shareholders should be happy to see the share price up 11% in the last week. But spare a thought for the long term holders, who have held the stock as it bled value over the last five years. In fact, the share price has tumbled down a mountain to land 73% lower after that period. The recent bounce might mean the long decline is over, but we are not confident. The million dollar question is whether the company can justify a long term recovery.

Although the past week has been more reassuring for shareholders, they're still in the red over the last five years, so let's see if the underlying business has been responsible for the decline.

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Huanxi Media Group 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 hope to see good revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

Over five years, Huanxi Media Group grew its revenue at 2.7% per year. That's not a very high growth rate considering it doesn't make profits. It's not so sure that share price crash of 12% per year is completely deserved, but the market is doubtless disappointed. We'd be pretty cautious about this one, although the sell-off may be too severe. We'd recommend focussing any further research on the likelihood of profitability in the foreseeable future, given the muted revenue growth.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

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

Huanxi Media Group shareholders are down 30% for the year, but the market itself is up 36%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 12% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Case in point: We've spotted 4 warning signs for Huanxi Media Group you should be aware of, and 1 of them shouldn't be ignored.

Of course Huanxi Media Group may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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

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