Lianhua Supermarket Holdings (HKG:980) adds HK$67m to market cap in the past 7 days, though investors from five years ago are still down 72%

Lianhua Supermarket Holdings Co., Ltd. (HKG:980) shareholders should be happy to see the share price up 14% 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 72% lower after that period. The recent bounce might mean the long decline is over, but we are not confident. The fundamental business performance will ultimately determine if the turnaround can be sustained.

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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Lianhua Supermarket Holdings 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.

In the last five years Lianhua Supermarket Holdings saw its revenue shrink by 6.9% per year. That's not what investors generally want to see. If a business loses money, you want it to grow, so no surprises that the share price has dropped 12% 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 company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free interactive report on Lianhua Supermarket Holdings' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

Lianhua Supermarket Holdings shareholders are up 2.8% for the year. But that was short of the market average. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 12% endured over half a decade. It could well be that the business is stabilizing. 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. To that end, you should learn about the 3 warning signs we've spotted with Lianhua Supermarket Holdings (including 2 which are a bit concerning) .

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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.