As every investor would know, not every swing hits the sweet spot. But you want to avoid the really big losses like the plague. So consider, for a moment, the misfortune of DreamEast Group Limited (HKG:593) investors who have held the stock for three years as it declined a whopping 82%. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. And more recent buyers are having a tough time too, with a drop of 67% in the last year. Even worse, it’s down 25% in about a month, which isn’t fun at all. Importantly, this could be a market reaction to the recently released financial results. You can check out the latest numbers in our company report.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don’t have to lose the lesson.
DreamEast Group isn’t currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
Over the last three years, DreamEast Group’s revenue dropped 92% per year. That’s definitely a weaker result than most pre-profit companies report. And as you might expect the share price has been weak too, dropping at a rate of 22% per year. Never forget that loss making companies with falling revenue can and do cause losses for everyday investors. There is a good reason that investors often describe buying a sharply falling stock price as ‘trying to catch a falling knife’. Think about it.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
Investors in DreamEast Group had a tough year, with a total loss of 67%, against a market gain of about 4.5%. 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. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 13% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Like risks, for instance. Every company has them, and we’ve spotted 4 warning signs for DreamEast Group (of which 2 make us uncomfortable!) you should know about.
We will like DreamEast Group 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.
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