You can invest in an index fund if you want to make sure your returns approximately match the overall market. But in any given year a good portion of stocks will fall short of that. One such example is Huadian Energy Company Limited (SHSE:600726), which saw its share price fall 26% over a year, against a market decline of 23%. Longer term investors have fared much better, since the share price is up 3.9% in three years. Furthermore, it's down 16% in about a quarter. That's not much fun for holders. However, one could argue that the price has been influenced by the general market, which is down 14% in the same timeframe.

Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.

Huadian Energy isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

Huadian Energy's revenue didn't grow at all in the last year. In fact, it fell 24%. That's not what investors generally want to see. Shareholders have seen the share price drop 26% in that time. That seems pretty reasonable given the lack of both profits and revenue growth. It's hard to escape the conclusion that buyers must envision either growth down the track, cost cutting, or both.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

If you are thinking of buying or selling Huadian Energy stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

While the broader market lost about 23% in the twelve months, Huadian Energy shareholders did even worse, losing 26%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 3% over the last half decade. 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. It's always interesting to track share price performance over the longer term. But to understand Huadian Energy better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Huadian Energy .

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.