While it may not be enough for some shareholders, we think it is good to see the China Shengmu Organic Milk Limited (HKG:1432) share price up 10% in a single quarter. But the last three years have seen a terrible decline. Indeed, the share price is down a whopping 79% in the last three years. So it sure is nice to see a big of an improvement. Only time will tell if the company can sustain the turnaround.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
We know that China Shengmu Organic Milk has been profitable in the past. However, it made a loss in the last twelve months, suggesting profit may be an unreliable metric at this stage. Other metrics may better explain the share price move.
Arguably the revenue decline of 10% per year has people thinking China Shengmu Organic Milk is shrinking. After all, if revenue keeps shrinking, it may be difficult to find earnings growth in the future.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. So we recommend checking out this free report showing consensus forecasts
A Different Perspective
The last twelve months weren’t great for China Shengmu Organic Milk shares, which performed worse than the market, costing holders 58%. The market shed around 0.6%, no doubt weighing on the stock price. The three-year loss of 41% per year isn’t as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. 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. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.
China Shengmu Organic Milk is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.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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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.