It is not possible to invest for long periods without making some bad investments. But you have a problem if you face massive losses more than once in a while. Consider for a moment the misfortune of Hua Medicine (Shanghai) Ltd. (HKG:2552) investors who have held the stock for three years when it fell 72%. It would be a disturbing experience. The most recent news is sobering, with the stock price having fallen 52% in one year. Even worse, it’s down 51% in about a month, which isn’t fun at all.
After losing 19% last week, it’s worth looking at company fundamentals to see what we can infer from past performance.
See our latest analysis for Hua Medicine (Shanghai)
Given that Hua Medicine (Shanghai) has posted a loss over the past twelve months, we think the market is likely more focused on revenue and revenue growth, at least for now. When a business is not making a profit, you generally expect to see good revenue growth. Indeed, it is difficult to be sure that a business will be sustainable if revenue growth is negligible and it never makes a profit.
Over the past three years, revenue at Hua Medicine (Shanghai) has fallen 1.1% per year. This is generally not what investors want to see. The 20% drop in share price (per year, over three years) is a stark reminder that companies that are losing money should increase their revenues. We are generally opposed to companies with declining revenues, but we are not alone in this case. There’s no more than a snowballing chance in hell that the stock price will return to its old highs, in the near term.
The company’s revenues and profits (over time) are shown in the image below (click to see exact figures).
It’s probably worth noting that we saw significant insider buying in the last quarter, which we view as a positive. That said, we believe earnings and revenue growth trends are even more important factors to consider. If you are thinking of buying or selling shares of Hua Medicine (Shanghai), you should check out this free report showing analyst earnings forecast.
A different perspective
The last twelve months have not been great for shares of Hua Medicine (Shanghai), which underperformed the market, costing holders 52%. Meanwhile, the broader market fell around 33%, which likely weighed on the stock. The loss of 20% per year over three years is not as bad as the last twelve months, which suggests that the company has not been able to convince the market that it has solved its problems. We would be hesitant to invest in a company with unresolved issues, although some investors will buy troubled stocks if they think the price is attractive enough. While it’s worth considering the various impacts that market conditions can have on the stock price, there are other, even more important factors. Nevertheless, be aware that Hua Medicine (Shanghai) shows 3 warning signs in our investment analysis you should know…
Hua Medicine (Shanghai) isn’t the only stock insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider buying, might be just the ticket.
Please note that the market returns quoted in this article reflect the average market-weighted returns of stocks currently trading on HK exchanges.
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Find out if Hua Medicine (Shanghai) is potentially overvalued or undervalued by viewing our full analysis, which includes fair value estimates, risks and warnings, dividends, insider trading and financial health.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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