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 Beijing Jingcheng Machinery Electric Company Limited (HKG:187) during the five years that saw its share price drop a whopping 72%. There was little comfort for shareholders in the last week as the price declined a further 2.9%.
Beijing Jingcheng Machinery Electric isn’t currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That’s because it’s hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
In the last five years Beijing Jingcheng Machinery Electric saw its revenue shrink by 8.0% 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 22% each year in that time. We’re generally averse to companies with declining revenues, but we’re not alone in that. Fear of becoming a ‘bagholder’ may be keeping people away from this stock.
The company’s revenue and earnings (over time) are depicted in the image below.
It’s probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
Beijing Jingcheng Machinery Electric provided a TSR of 6.3% over the last twelve months. But that return falls short of the market. On the bright side, that’s still a gain, and it is certainly better than the yearly loss of about 22% endured over half a decade. So this might be a sign the business has turned its fortunes around. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
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.
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 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. Thank you for reading.