Volatility 101: Should China Online Education Group (NYSE:COE) Shares Have Dropped 48%?

It’s easy to match the overall market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in China Online Education Group (NYSE:COE) have tasted that bitter downside in the last year, as the share price dropped 48%. That’s well bellow the market return of 5.2%. Because China Online Education Group hasn’t been listed for many years, the market is still learning about how the business performs. Shareholders have had an even rougher run lately, with the share price down 12% in the last 90 days. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.

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Check out our latest analysis for China Online Education Group

China Online Education Group isn’t a profitable company, so 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. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last twelve months, China Online Education Group increased its revenue by 35%. That’s definitely a respectable growth rate. Unfortunately that wasn’t good enough to stop the share price dropping 48%. You might even wonder if the share price was previously over-hyped. But if revenue keeps growing, then at a certain point the share price would likely follow.

You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).

NYSE:COE Income Statement, May 16th 2019
NYSE:COE Income Statement, May 16th 2019

Take a more thorough look at China Online Education Group’s financial health with this free report on its balance sheet.

A Different Perspective

Given that the market gained 5.2% in the last year, China Online Education Group shareholders might be miffed that they lost 48%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 12% over the last three months, the market doesn’t seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.

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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Thank you for reading.