Strong week for Shenwan Hongyuan (H.K.) (HKG:218) shareholders doesn't alleviate pain of five-year loss

Shenwan Hongyuan (H.K.) Limited (HKG:218) shareholders should be happy to see the share price up 18% in the last month. But that doesn't change the fact that the returns over the last half decade have been stomach churning. Like a ship taking on water, the share price has sunk 85% in that time. The recent bounce might mean the long decline is over, but we are not confident. The fundamental business performance will ultimately determine if the turnaround can be sustained. We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.

While the last five years has been tough for Shenwan Hongyuan (H.K.) shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

View our latest analysis for Shenwan Hongyuan (H.K.)

Because Shenwan Hongyuan (H.K.) 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. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

Over half a decade Shenwan Hongyuan (H.K.) reduced its trailing twelve month revenue by 6.3% for each year. That's not what investors generally want to see. If a business loses money, you want it to grow, so no surprises that the share price has dropped 13% each year in that time. It takes a certain kind of mental fortitude (or recklessness) to buy shares in a company that loses money and doesn't grow revenue. Fear of becoming a 'bagholder' may be keeping people away from this stock.

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

Take a more thorough look at Shenwan Hongyuan (H.K.)'s financial health with this free report on its balance sheet.

A Different Perspective

We regret to report that Shenwan Hongyuan (H.K.) shareholders are down 24% for the year. Unfortunately, that's worse than the broader market decline of 5.0%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, longer term shareholders are suffering worse, given the loss of 13% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. It's always interesting to track share price performance over the longer term. But to understand Shenwan Hongyuan (H.K.) better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Shenwan Hongyuan (H.K.) (at least 1 which is potentially serious) , and understanding them should be part of your investment process.

If you are like me, then you will 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 Hong Kong exchanges.

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

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.