LVGEM (China) Real Estate Investment (HKG:95) adds HK$182m to market cap in the past 7 days, though investors from five years ago are still down 88%

While it may not be enough for some shareholders, we think it is good to see the LVGEM (China) Real Estate Investment Company Limited (HKG:95) share price up 24% in a single quarter. But spare a thought for the long term holders, who have held the stock as it bled value over the last five years. Indeed, the share price is down a whopping 88% in that time. 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. We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.

On a more encouraging note the company has added HK$182m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.

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Given that LVGEM (China) Real Estate Investment didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. Shareholders of unprofitable companies usually desire strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

Over half a decade LVGEM (China) Real Estate Investment reduced its trailing twelve month revenue by 5.7% for each year. While far from catastrophic that is not good. If a business loses money, you want it to grow, so no surprises that the share price has dropped 14% each year in that time. It takes a certain kind of mental fortitude (or recklessness) to buy shares in a company that loses money and doesn't grow revenue. Fear of becoming a 'bagholder' may be keeping people away from this stock.

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

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. It might be well worthwhile taking a look at our free report on LVGEM (China) Real Estate Investment's earnings, revenue and cash flow.

A Different Perspective

While the broader market gained around 49% in the last year, LVGEM (China) Real Estate Investment shareholders lost 41%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 14% 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. 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. Take risks, for example - LVGEM (China) Real Estate Investment has 3 warning signs (and 2 which shouldn't be ignored) we think you should know about.

Of course LVGEM (China) Real Estate Investment 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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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.