The nature of investing is that you win some, and you lose some. And there's no doubt that Huali University Group Limited (HKG:1756) stock has had a really bad year. To wit the share price is down 55% in that time. Huali University Group hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. Furthermore, it's down 45% in about a quarter. That's not much fun for holders.
With the stock having lost 11% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the unfortunate twelve months during which the Huali University Group share price fell, it actually saw its earnings per share (EPS) improve by 0.8%. It could be that the share price was previously over-hyped.
It seems quite likely that the market was expecting higher growth from the stock. But looking to other metrics might better explain the share price change.
Huali University Group managed to grow revenue over the last year, which is usually a real positive. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. You can see what analysts are predicting for Huali University Group in this interactive graph of future profit estimates.
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Huali University Group's total shareholder return (TSR) and its share price return. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Huali University Group's TSR of was a loss of 52% for the 1 year. That wasn't as bad as its share price return, because it has paid dividends.
A Different Perspective
Given that the market gained 17% in the last year, Huali University Group shareholders might be miffed that they lost 52%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 45% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. It's always interesting to track share price performance over the longer term. But to understand Huali University Group better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for Huali University Group you should be aware of, and 1 of them makes us a bit uncomfortable.
But note: Huali University 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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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.
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