Some stocks are best avoided. We don't wish catastrophic capital loss on anyone. Imagine if you held China Agroforestry Low-Carbon Holdings Limited (HKG:1069) for half a decade as the share price tanked 98%. We also note that the stock has performed poorly over the last year, with the share price down 83%. More recently, the share price has dropped a further 9.1% in a month.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

View our latest analysis for China Agroforestry Low-Carbon Holdings

China Agroforestry Low-Carbon Holdings 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 expect to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

In the last half decade, China Agroforestry Low-Carbon Holdings saw its revenue increase by 22% per year. That's better than most loss-making companies. So on the face of it we're really surprised to see the share price has averaged a fall of 52% each year, in the same time period. It could be that the stock was over-hyped before. 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).

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

While the broader market lost about 4.2% in the twelve months, China Agroforestry Low-Carbon Holdings shareholders did even worse, losing 83%. 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 51% over the last half decade. We realise that Buffett 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 5 warning signs with China Agroforestry Low-Carbon Holdings (at least 2 which are potentially serious) , and understanding them should be part of your investment process.