We're definitely into long term investing, but some companies are simply bad investments over any time frame. We really hate to see fellow investors lose their hard-earned money. For example, we sympathize with anyone who was caught holding Tunghsu Optoelectronic Technology Co., Ltd. (SZSE:000413) during the five years that saw its share price drop a whopping 75%. And it's not just long term holders hurting, because the stock is down 27% in the last year. Shareholders have had an even rougher run lately, with the share price down 25% in the last 90 days. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
Since Tunghsu Optoelectronic Technology has shed CN¥1.1b from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.
Tunghsu Optoelectronic Technology 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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last five years Tunghsu Optoelectronic Technology saw its revenue shrink by 39% per year. That's definitely a weaker result than most pre-profit companies report. So it's not that strange that the share price dropped 12% per year in that period. We don't think this is a particularly promising picture. Of course, the poor performance could mean the market has been too severe selling down. That can happen.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
While the broader market lost about 17% in the twelve months, Tunghsu Optoelectronic Technology shareholders did even worse, losing 27%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 12% per year over five years. 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. It's always interesting to track share price performance over the longer term. But to understand Tunghsu Optoelectronic Technology better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Tunghsu Optoelectronic Technology , and understanding them should be part of your investment process.
If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.
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