Every investor on earth makes bad calls sometimes. But really bad investments should be rare. So consider, for a moment, the misfortune of Shida Shinghwa Advanced Material Group Co., Ltd. (SHSE:603026) investors who have held the stock for three years as it declined a whopping 76%. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. And more recent buyers are having a tough time too, with a drop of 39% in the last year. Unfortunately the share price momentum is still quite negative, with prices down 9.7% in thirty days. We do note, however, that the broader market is down 4.5% in that period, and this may have weighed on the share price.
Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.
While Shida Shinghwa Advanced Material Group made a small profit, in the last year, we think that the market is probably more focussed on the top line growth at the moment. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. It would be hard to believe in a more profitable future without growing revenues.
Over three years, Shida Shinghwa Advanced Material Group grew revenue at 0.2% per year. Given it's losing money in pursuit of growth, we are not really impressed with that. But the share price crash at 21% per year does seem a bit harsh! While we're definitely wary of the stock, after that kind of performance, it could be an over-reaction. Of course, revenue growth is nice but generally speaking the lower the profits, the riskier the business - and this business isn't making steady profits.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
If you are thinking of buying or selling Shida Shinghwa Advanced Material Group stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
We regret to report that Shida Shinghwa Advanced Material Group shareholders are down 39% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 14%. 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. Longer term investors wouldn't be so upset, since they would have made 3%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Take risks, for example - Shida Shinghwa Advanced Material Group has 2 warning signs (and 1 which is significant) we think you should know about.
But note: Shida Shinghwa Advanced Material Group may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
