Some stocks are best avoided. We don't wish catastrophic capital loss on anyone. Anyone who held Mabpharm Limited (HKG:2181) for five years would be nursing their metaphorical wounds since the share price dropped 72% in that time. And it's not just long term holders hurting, because the stock is down 37% in the last year.

Since Mabpharm has shed HK$186m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for Mabpharm

Mabpharm wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. When a company doesn't make profits, we'd generally hope to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last half decade, Mabpharm saw its revenue increase by 40% per year. That's well above most other pre-profit companies. So it's not at all clear to us why the share price sunk 11% throughout that time. You'd have to assume the market is worried that profits won't come soon enough. We'd recommend carefully checking for indications of future growth - and balance sheet threats - before considering a purchase.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

Mabpharm shareholders are down 37% for the year, but the market itself is up 2.2%. 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 11% over the last half decade. 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. It's always interesting to track share price performance over the longer term. But to understand Mabpharm better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Mabpharm .

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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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