[Financial Report 101] Fundamental Analysis: Why do some companies keep losing money but their stock prices are rising?

Tuesday @moo_Live Livestreamed on Alibaba $Alibaba(BABA.US)$ The results conference for the third quarter of FY2021, this live broadcast really had highlights everywhere.The most prominent of these is full investment in new retail businesses to gradually form an economy close to consumers. Nokia $Nokia Oyj(NOK.US)$Will be today at 21:00 Beijing timeLaunching an earnings conference, can Nokia fight a turnaround in the 5G competition?How to analyze stock trends through the fundamentals of a company? Why do some companies keep losing money but their stock prices are rising? This article will answer your questions.

I. Market space

In the field of emerging industries, market demand is being formed, and future market capacity is difficult to estimate.This type of industry history is often the cradle of great enterprises. Bull stocks are constantly emerging, so we should focus on exploring large companies in small industries.

As for industrial transformation, old leading companies are being deconstructed, and a new ceiling has yet to be formed or is being formed.“Innovation” will disrupt the original industry balance and create new demand. Companies representing new technology and new productivity will stand out.Once upon a time, Nokia was the king in the mobile phone industry. Since 2010, the mobile phone business has declined. After making decisions, Nokia summed up system reasons, and then gradually replaced by emerging brands. The earnings report released in the third quarter of 2020 showed that profits fell short of expectations, falling more than 17% before the market. The new CEO announced a reduction in profit expectations for the whole year and a drastic adjustment to the company's strategy. The value is that Nokia is increasing its investment layout in 5G, but in the face of high-speed competition on the 5G racetrack, Nokia seems to lack the support of a core competitiveness.

[Financial Report 101] Fundamental Analysis: Why do some companies keep losing money but their stock prices are rising?

For an industry that has reached the ceiling.Investment opportunities come from companies with monopoly management capabilities merging disadvantaged enterprises at low cost to expand market share and reduce marginal costs of product production and sales.

II. Core competitiveness

Regarding the core competitiveness of an enterprise, what we need to pay attention to is whether the main business of the enterprise is differentiated from that of companies in the same industry? How strong is the momentum of the main business? And what about its competitive barriers to the market?

In the previous investment education, we have explained how to distinguish the profitability of the company's main business from the main business through corporate costs and profits. According to the earnings report released by Alibaba on Tuesday, Ali's acquisition of Gaoxin Retail and driven by activities such as Double Eleven, Ali's main business almost doubled its quarterly revenue from the new retail quarter over the same period last year. What is worth paying attention to is Alibaba Cloud's business, which is expected to turn positive and profitable within two quarters.

III. Growth

Is the corporate growth model internally driven or operated by external capital?

Internal drivers include developing new products and new markets; exploring demand for old products and increasing market share; raising product prices; reducing various costs; capital operations including mergers and acquisitions and restructuring; and asset injection.Why do some companies keep losing money, but their stock prices don't fall but rise? First, it is possible that shareholders will continue to buy. If news of listed companies being merged, acquisitions and restructuring comes out, then stock prices will soar. Second, the majority shareholders want to save themselves; they want to throw away their chips early and cash them out at a high level. Naturally, the most common situation is that the growth of an enterprise is favored by the market. Although it is in a state of loss, losses are gradually shrinking, and profits are expected to be achieved.

Compared to Nokia's earnings data in recent years, the loss situation was reversed in '19.Nokia released its 2020 Q4 earnings report this afternoon, which was better than market expectations. Lundmark further explained in the statement that the main reason for the increase in the gross margin of 5G devices was the reduction in product costs. In addition, the increase in ReefShark chipset shipments was also helpful.However, FY2021 will be a challenging year, especially significant adverse factors such as falling prices and loss of market share in North America due to fierce competition.

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