As an investor, mistakes are inevitable. But you have a problem if you face massive losses more than once in a while. So consider, for a moment, the misfortune of Fortunet e-Commerce Group Limited (HKG:1039) investors who have held the stock for three years as it declined a whopping 77%. That’d be enough to cause even the strongest minds some disquiet. And the ride hasn’t got any smoother in recent times over the last year, with the price 42% lower in that time. The silver lining is that the stock is up 8.2% in about a week.
Given that Fortunet e-Commerce Group didn’t make a profit in the last twelve months, we’ll focus on revenue growth to form a quick view of its business development. Shareholders of unprofitable companies usually expect strong revenue growth. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Over the last three years, Fortunet e-Commerce Group’s revenue dropped 65% per year. That means its revenue trend is very weak compared to other loss making companies. And as you might expect the share price has been weak too, dropping at a rate of 39% 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.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
This free interactive report on Fortunet e-Commerce Group’s balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
Fortunet e-Commerce Group shareholders are down 42% for the year, but the market itself is up 12%. 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. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 11% per year over five years. We realise that Buffett has said investors should ‘buy when there is blood on the streets’, but we caution that investors should first be sure they are buying a high quality businesses. It’s always interesting to track share price performance over the longer term. But to understand Fortunet e-Commerce Group better, we need to consider many other factors. For example, we’ve discovered 3 warning signs for Fortunet e-Commerce Group (of which 1 is major) which any shareholder or potential investor should be aware of.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
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