While Sky Light Holdings (HKG:3882) shareholders have made 584% in 3 years, increasing losses might now be front of mind as stock sheds 14% this week

Sky Light Holdings Limited (HKG:3882) shareholders might be concerned after seeing the share price drop 14% in the last week. But over the last three years the stock has shone bright like a diamond. Over that time, we've been excited to watch the share price climb an impressive 584%. So the recent fall doesn't do much to dampen our respect for the business. Only time will tell if there is still too much optimism currently reflected in the share price. Anyone who held for that rewarding ride would probably be keen to talk about it.

While this past week has detracted from the company's three-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

Our free stock report includes 1 warning sign investors should be aware of before investing in Sky Light Holdings. Read for free now.

Given that Sky Light Holdings didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. When a company doesn't make profits, we'd generally hope to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

In the last 3 years Sky Light Holdings saw its revenue shrink by 36% per year. This is in stark contrast to the strong share price growth of 90%, compound, per year. There can be no doubt this kind of decoupling of revenue growth and share price growth is unusual to see in loss making companies. So there is a serious possibility that some holders are counting their chickens before they hatch.

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

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. Dive deeper into the earnings by checking this interactive graph of Sky Light Holdings' earnings, revenue and cash flow.

A Different Perspective

While the broader market gained around 18% in the last year, Sky Light Holdings shareholders lost 27%. 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. Longer term investors wouldn't be so upset, since they would have made 36%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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 instance, we've identified 1 warning sign for Sky Light Holdings that you should be aware of.

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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 Hong Kong exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.