The simplest way to benefit from a rising market is to buy an index fund. Active investors aim to buy stocks that vastly outperform the market – but in the process, they risk under-performance. For example, the Affluent Foundation Holdings Limited (HKG:1757) share price is down 27% in the last year. That falls noticeably short of the market decline of around 7.4%. We wouldn’t rush to judgement on Affluent Foundation Holdings because we don’t have a long term history to look at. Furthermore, it’s down 15% in about a quarter. That’s not much fun for holders. But this could be related to the weak market, which is down 7.6% in the same period.
Affluent Foundation Holdings 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 just one year Affluent Foundation Holdings saw its revenue fall by 49%. That’s not what investors generally want to see. The stock price has languished lately, falling 27% in a year. That seems pretty reasonable given the lack of both profits and revenue growth. It’s hard to escape the conclusion that buyers must envision either growth down the track, cost cutting, or both.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
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 interactive report on Affluent Foundation Holdings’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Different Perspective
We doubt Affluent Foundation Holdings shareholders are happy with the loss of 27% over twelve months. That falls short of the market, which lost 7.4%. That’s disappointing, but it’s worth keeping in mind that the market-wide selling wouldn’t have helped. With the stock down 15% over the last three months, the market doesn’t seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we’d remain pretty wary until we see some strong business performance. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We’ve identified 4 warning signs with Affluent Foundation Holdings (at least 2 which are significant) , and understanding them should be part of your investment process.
We will like Affluent Foundation Holdings better if we see some big insider buys. While we wait, check out this free list of growing companies 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 HK exchanges.
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This article by Simply Wall St is general in nature. 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. Thank you for reading.