Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term The Hongkong and Shanghai Hotels, Limited (HKG:45) shareholders, since the share price is down 33% in the last three years, falling well short of the market decline of around 8.2%. Even worse, it's down 9.1% in about a month, which isn't fun at all. However, we note the price may have been impacted by the broader market, which is down 5.1% in the same time period.
Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.
Because Hongkong and Shanghai Hotels made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
Over the last three years, Hongkong and Shanghai Hotels' revenue dropped 32% per year. That means its revenue trend is very weak compared to other loss making companies. With revenue in decline, the share price decline of 10% per year is hardly undeserved. It would probably be worth asking whether the company can fund itself to profitability. The company will need to return to revenue growth as quickly as possible, if it wants to see some enthusiasm from investors.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. You can see what analysts are predicting for Hongkong and Shanghai Hotels 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 Hongkong and Shanghai Hotels' 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. Dividends have been really beneficial for Hongkong and Shanghai Hotels shareholders, and that cash payout explains why its total shareholder loss of 31%, over the last 3 years, isn't as bad as the share price return.
A Different Perspective
While it's never nice to take a loss, Hongkong and Shanghai Hotels shareholders can take comfort that their trailing twelve month loss of 0.9% wasn't as bad as the market loss of around 25%. What is more upsetting is the 1.7% per annum loss investors have suffered over the last half decade. While the losses are slowing we doubt many shareholders are happy with the stock. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
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.