The last three months have been tough on GuangDong SongYang Recycle Resources CO.,LTD (SHSE:603863) shareholders, who have seen the share price decline a rather worrying 35%. But don't let that distract from the very nice return generated over three years. In the last three years the share price is up, 100%: better than the market.
In light of the stock dropping 11% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive three-year return.
GuangDong SongYang Recycle ResourcesLTD isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. 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 3 years GuangDong SongYang Recycle ResourcesLTD saw its revenue grow at 1.5% per year. That's not a very high growth rate considering it doesn't make profits. In that time the share price is up 26% per year, which is not unreasonable given the revenue growth. The real question is when the business will generate profits, and how quickly they will grow. In this sort of situation it can be worth putting the stock on your watchlist. If it can become profitable, then even moderate revenue growth could grow profits quickly.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
If you are thinking of buying or selling GuangDong SongYang Recycle ResourcesLTD stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
GuangDong SongYang Recycle ResourcesLTD shareholders are down 48% for the year, but the market itself is up 7.2%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 3% per year over half a decade. 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. To that end, you should be aware of the 2 warning signs we've spotted with GuangDong SongYang Recycle ResourcesLTD .
We will like GuangDong SongYang Recycle ResourcesLTD better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider 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.
