The art and science of stock market investing requires a tolerance for losing money on some of the shares you buy. But it should be a priority to avoid stomach churning catastrophes, wherever possible. So we hope that those who held Wey Education plc (LON:WEY) during the last year don’t lose the lesson, in addition to the 78% hit to the value of their shares. That’d be a striking reminder about the importance of diversification. Longer term investors have fared much better, since the share price is up 17% in three years. Furthermore, it’s down 38% in about a quarter. That’s not much fun for holders.
Wey Education 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. When a company doesn’t make profits, we’d generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
Wey Education grew its revenue by 73% over the last year. That’s a strong result which is better than most other loss making companies. So the hefty 78% share price crash makes us think the company has somehow offended market participants. There’s clearly something unusual going on here such as an acquisition that hasn’t delivered expected profits. What is clear is that the market is not judging the company on its revenue growth right now. Of course, markets do over-react so share price drop may be too harsh.
The graphic below shows how revenue and earnings have changed as management guided the business forward. If you want to see cashflow, you can click on the chart.
We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized 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. So it makes a lot of sense to check out what analysts think Wey Education will earn in the future (free profit forecasts)
A Different Perspective
While the broader market gained around 7.0% in the last year, Wey Education shareholders lost 78%. 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. On the bright side, long term shareholders have made money, with a gain of 0.5% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
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 GB exchanges.
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