If You Had Bought China Outfitters Holdings' (HKG:1146) Shares Five Years Ago You Would Be Down 79%

China Outfitters Holdings Limited (HKG:1146) shareholders should be happy to see the share price up 23% in the last week. But spare a thought for the long term holders, who have held the stock as it bled value over the last five years. In fact, the share price has tumbled down a mountain to land 79% lower after that period. While the recent increase might be a green shoot, we're certainly hesitant to rejoice. The real question is whether the business can leave its past behind and improve itself over the years ahead.

See our latest analysis for China Outfitters Holdings

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

In the last half decade China Outfitters Holdings saw its share price fall as its EPS declined below zero. This was, in part, due to extraordinary items impacting earnings. Since the company has fallen to a loss making position, it's hard to compare the change in EPS with the share price change. However, we can say we'd expect to see a falling share price in this scenario.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Dive deeper into the earnings by checking this interactive graph of China Outfitters Holdings' earnings, revenue and cash flow.

A Different Perspective

Investors in China Outfitters Holdings had a tough year, with a total loss of 35%, against a market gain of about 9.5%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 12% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. For example, we've discovered 3 warning signs for China Outfitters Holdings (1 is a bit unpleasant!) that you should be aware of before investing here.

China Outfitters Holdings 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.

When trading China Outfitters Holdings or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.