Shareholders in Xiabuxiabu Catering Management (China) Holdings (HKG:520) have lost 88%, as stock drops 10% this past week

Long term investing is the way to go, but that doesn't mean you should hold every stock forever. We really hate to see fellow investors lose their hard-earned money. For example, we sympathize with anyone who was caught holding Xiabuxiabu Catering Management (China) Holdings Co., Ltd. (HKG:520) during the five years that saw its share price drop a whopping 89%. And we doubt long term believers are the only worried holders, since the stock price has declined 68% over the last twelve months. Shareholders have had an even rougher run lately, with the share price down 23% in the last 90 days. We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.

With the stock having lost 10% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

View our latest analysis for Xiabuxiabu Catering Management (China) Holdings

Given that Xiabuxiabu Catering Management (China) 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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

In the last half decade, Xiabuxiabu Catering Management (China) Holdings saw its revenue increase by 0.5% per year. That's far from impressive given all the money it is losing. Nonetheless, it's fair to say the rapidly declining share price (down 14%, compound, over five years) suggests the market is very disappointed with this level of growth. While we're definitely wary of the stock, after that kind of performance, it could be an over-reaction. We'd recommend focussing any further research on the likelihood of profitability in the foreseeable future, given the muted revenue growth.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. You can see what analysts are predicting for Xiabuxiabu Catering Management (China) Holdings in this interactive graph of future profit estimates.

A Different Perspective

While the broader market gained around 5.7% in the last year, Xiabuxiabu Catering Management (China) Holdings shareholders lost 68% (even including dividends). 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 13% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand Xiabuxiabu Catering Management (China) Holdings better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Xiabuxiabu Catering Management (China) Holdings , and understanding them should be part of your investment process.

Xiabuxiabu Catering Management (China) Holdings is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been buying.

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.

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