Earnings are growing at Baoye Group (HKG:2355) but shareholders still don't like its prospects

By
Simply Wall St
Published
March 17, 2022
SEHK:2355
Source: Shutterstock

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But the main game is to find enough winners to more than offset the losers At this point some shareholders may be questioning their investment in Baoye Group Company Limited (HKG:2355), since the last five years saw the share price fall 44%. Unfortunately the share price momentum is still quite negative, with prices down 21% in thirty days. But this could be related to poor market conditions -- stocks are down 23% in the same time.

After losing 12% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

See our latest analysis for Baoye Group

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During the unfortunate half decade during which the share price slipped, Baoye Group actually saw its earnings per share (EPS) improve by 9.3% per year. So it doesn't seem like EPS is a great guide to understanding how the market is valuing the stock. Alternatively, growth expectations may have been unreasonable in the past.

Because of the sharp contrast between the EPS growth rate and the share price growth, we're inclined to look to other metrics to understand the changing market sentiment around the stock.

In contrast to the share price, revenue has actually increased by 8.6% a year in the five year period. A more detailed examination of the revenue and earnings may or may not explain why the share price languishes; there could be an opportunity.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

earnings-and-revenue-growth
SEHK:2355 Earnings and Revenue Growth March 17th 2022

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

A Different Perspective

While it's certainly disappointing to see that Baoye Group shares lost 18% throughout the year, that wasn't as bad as the market loss of 31%. Given the total loss of 8% per year over five years, it seems returns have deteriorated in the last twelve months. While some investors do well specializing in buying companies that are struggling (but nonetheless undervalued), don't forget that Buffett said that 'turnarounds seldom turn'. It's always interesting to track share price performance over the longer term. But to understand Baoye Group better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Baoye Group .

But note: Baoye 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.

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