In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But even the best stock picker will only win with some selections. So we wouldn't blame long term Anhui Tatfook Technology Co., Ltd (SZSE:300134) shareholders for doubting their decision to hold, with the stock down 41% over a half decade. And it's not just long term holders hurting, because the stock is down 21% in the last year. And the share price decline continued over the last week, dropping some 8.0%.
Since Anhui Tatfook Technology has shed CN¥571m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.
Because Anhui Tatfook Technology made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
Over five years, Anhui Tatfook Technology grew its revenue at 5.8% per year. That's not a very high growth rate considering it doesn't make profits. Given this fairly low revenue growth (and lack of profits), it's not particularly surprising to see the stock down 7% (annualized) in the same time frame. Investors should consider how bad the losses are, and whether the company can make it to profitability with ease. It could be worth putting it on your watchlist and revisiting when it makes its maiden profit.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
If you are thinking of buying or selling Anhui Tatfook Technology stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
While the broader market lost about 15% in the twelve months, Anhui Tatfook Technology shareholders did even worse, losing 21%. 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 7% 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. You could get a better understanding of Anhui Tatfook Technology's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Chinese 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.