This week we saw the Huafu Fashion Co., Ltd. (SZSE:002042) share price climb by 10%. But that doesn't change the fact that the returns over the last half decade have been disappointing. Indeed, the share price is down 56% in the period. So we're hesitant to put much weight behind the short term increase. But it could be that the fall was overdone.
The recent uptick of 10% could be a positive sign of things to come, so let's take a look at historical fundamentals.
While Huafu Fashion 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. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.
In the last five years Huafu Fashion saw its revenue shrink by 2.3% per year. That's not what investors generally want to see. With neither profit nor revenue growth, the loss of 9% per year doesn't really surprise us. We don't think anyone is rushing to buy this stock. Not that many investors like to invest in companies that are losing money and not growing revenue.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
We know that Huafu Fashion has improved its bottom line lately, but what does the future have in store? So we recommend checking out this free report showing consensus forecasts
What About The Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Huafu Fashion's total shareholder return (TSR) and its share price return. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Its history of dividend payouts mean that Huafu Fashion's TSR, which was a 51% drop over the last 5 years, was not as bad as the share price return.
A Different Perspective
It's good to see that Huafu Fashion has rewarded shareholders with a total shareholder return of 2.9% in the last twelve months. Notably the five-year annualised TSR loss of 9% per year compares very unfavourably with the recent share price performance. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. It's always interesting to track share price performance over the longer term. But to understand Huafu Fashion 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 Huafu Fashion (at least 1 which is significant) , and understanding them should be part of your investment process.
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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.
