We’re definitely into long term investing, but some companies are simply bad investments over any time frame. We don’t wish catastrophic capital loss on anyone. For example, we sympathize with anyone who was caught holding China e-Wallet Payment Group Limited (HKG:802) during the five years that saw its share price drop a whopping 88%. And it’s not just long term holders hurting, because the stock is down 42% in the last year. Furthermore, it’s down 21% in about a quarter. That’s not much fun for holders.
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.
China e-Wallet Payment 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. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last half decade, China e-Wallet Payment Group saw its revenue increase by 20% per year. That’s well above most other pre-profit companies. So on the face of it we’re really surprised to see the share price has averaged a fall of 35% each year, in the same time period. It could be that the stock was over-hyped before. While there might be an opportunity here, you’d want to take a close look at the balance sheet strength.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
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. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What about the Total Shareholder Return (TSR)?
Investors should note that there’s a difference between China e-Wallet Payment Group’s total shareholder return (TSR) and its share price change, which we’ve covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. China e-Wallet Payment Group’s TSR of was a loss of 72% for the 5 years. That wasn’t as bad as its share price return, because it has paid dividends.
A Different Perspective
China e-Wallet Payment Group shareholders are down 42% for the year, but the market itself is up 3.3%. 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 23% per year over five years. 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. 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. For instance, we’ve identified 4 warning signs for China e-Wallet Payment Group that you should be aware of.
But note: China e-Wallet Payment Group may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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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