Investors who have held Top Education Group (HKG:1752) over the last three years have watched its earnings decline along with their investment

By
Simply Wall St
Published
December 01, 2021
SEHK:1752
Source: Shutterstock

Top Education Group Ltd (HKG:1752) shareholders will doubtless be very grateful to see the share price up 67% in the last quarter. But that cannot eclipse the less-than-impressive returns over the last three years. Truth be told the share price declined 18% in three years and that return, Dear Reader, falls short of what you could have got from passive investing with an index fund.

Although the past week has been more reassuring for shareholders, they're still in the red over the last three years, so let's see if the underlying business has been responsible for the decline.

Check out our latest analysis for Top Education Group

Given that Top Education Group only made minimal earnings in the last twelve months, we'll focus on revenue to gauge its business development. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

Over three years, Top Education Group grew revenue at 5.5% per year. Given it's losing money in pursuit of growth, we are not really impressed with that. The stock dropped 6% during that time. If revenue growth accelerates, we might see the share price bounce. But the real upside for shareholders will be if the company can start generating profits.

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

earnings-and-revenue-growth
SEHK:1752 Earnings and Revenue Growth December 1st 2021

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

The last twelve months weren't great for Top Education Group shares, which performed worse than the market, costing holders 16%. Meanwhile, the broader market slid about 3.9%, likely weighing on the stock. Shareholders have lost 5% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. 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. Take risks, for example - Top Education Group has 5 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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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