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. Imagine if you held China CITIC Financial Asset Management Co., Ltd. (HKG:2799) for half a decade as the share price tanked 83%. And some of the more recent buyers are probably worried, too, with the stock falling 36% in the last year. The falls have accelerated recently, with the share price down 27% in the last three months. While a drop like that is definitely a body blow, money isn't as important as health and happiness.
If the past week is anything to go by, investor sentiment for China CITIC Financial Asset Management isn't positive, so let's see if there's a mismatch between fundamentals and the share price.
China CITIC Financial Asset Management 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. When a company doesn't make profits, we'd generally hope to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last five years China CITIC Financial Asset Management saw its revenue shrink by 41% per year. That puts it in an unattractive cohort, to put it mildly. So it's not that strange that the share price dropped 13% per year in that period. We don't think this is a particularly promising picture. Ironically, that behavior could create an opportunity for the contrarian investor - but only if there are good reasons to predict a brighter future.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Take a more thorough look at China CITIC Financial Asset Management's financial health with this free report on its balance sheet.
A Different Perspective
We regret to report that China CITIC Financial Asset Management shareholders are down 36% for the year. Unfortunately, that's worse than the broader market decline of 8.5%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 13% 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. 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. For instance, we've identified 2 warning signs for China CITIC Financial Asset Management that you should be aware of.
Of course China CITIC Financial Asset Management may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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.
