Eternity Investment Limited (HKG:764) shareholders should be happy to see the share price up 11% in the last month. But spare a thought for the long term holders, who have held the stock as it bled value over the last five years. Indeed, the share price is down a whopping 77% in that time. So we don’t gain too much confidence from the recent recovery. The million dollar question is whether the company can justify a long term recovery.
Eternity Investment wasn’t profitable in the last twelve months, it is unlikely we’ll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. When a company doesn’t make profits, we’d generally expect to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
In the last five years Eternity Investment saw its revenue shrink by 0.3% per year. That’s not what investors generally want to see. If a business loses money, you want it to grow, so no surprises that the share price has dropped 26% each year in that time. It takes a certain kind of mental fortitude (or recklessness) to buy shares in a company that loses money and doesn’t grow revenue. Fear of becoming a ‘bagholder’ may be keeping people away from this stock.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
It’s probably worth noting we’ve seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Dive deeper into the earnings by checking this interactive graph of Eternity Investment’s earnings, revenue and cash flow.
A Different Perspective
We regret to report that Eternity Investment shareholders are down 19% for the year. Unfortunately, that’s worse than the broader market decline of 1.8%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. Unfortunately, longer term shareholders are suffering worse, given the loss of 25% doled out over the last five years. We’d need to see some sustained improvements in the key metrics before we could muster much enthusiasm. 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. To that end, you should learn about the 4 warning signs we’ve spotted with Eternity Investment (including 2 which is are significant) .
Eternity Investment is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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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