Statistically speaking, long term investing is a profitable endeavour. But that doesn't mean long term investors can avoid big losses. To wit, the Alibaba Pictures Group Limited (HKG:1060) share price managed to fall 68% over five long years. That is extremely sub-optimal, to say the least. Furthermore, it's down 13% in about a quarter. That's not much fun for holders.
Although the past week has been more reassuring for shareholders, they're still in the red over the last five years, so let's see if the underlying business has been responsible for the decline.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During five years of share price growth, Alibaba Pictures Group moved from a loss to profitability. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics may better explain the share price move.
Revenue is actually up 8.6% over the time period. So it seems one might have to take closer look at the fundamentals to understand why the share price languishes. After all, there may be an opportunity.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free report showing analyst forecasts should help you form a view on Alibaba Pictures Group
A Different Perspective
The total return of 13% received by Alibaba Pictures Group shareholders over the last year isn't far from the market return of -13%. Worse still, the company has lost shareholders 11% per year over five years. Generally speaking we'd prefer see an improvement in the fundamental metrics before becoming enthusiastic about the stock. It's always interesting to track share price performance over the longer term. But to understand Alibaba Pictures Group better, we need to consider many other factors. For example, we've discovered 2 warning signs for Alibaba Pictures Group that you should be aware of before investing here.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Hong Kong 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.
