New Century Healthcare Holding (HKG:1518 shareholders incur further losses as stock declines 11% this week, taking three-year losses to 86%

By
Simply Wall St
Published
August 26, 2021
SEHK:1518
Source: Shutterstock

It's not possible to invest over long periods without making some bad investments. But you have a problem if you face massive losses more than once in a while. So spare a thought for the long term shareholders of New Century Healthcare Holding Co. Limited (HKG:1518); the share price is down a whopping 86% in the last three years. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. Furthermore, it's down 21% in about a quarter. That's not much fun for holders. But this could be related to the weak market, which is down 11% in the same period. 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.

If the past week is anything to go by, investor sentiment for New Century Healthcare Holding isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

See our latest analysis for New Century Healthcare Holding

New Century Healthcare Holding isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong 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 three years, New Century Healthcare Holding grew revenue at 2.0% per year. That's not a very high growth rate considering it doesn't make profits. Nonetheless, it's fair to say the rapidly declining share price (down 23%, compound, over three 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. Before considering a purchase, take a look at the losses the company is racking up.

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

earnings-and-revenue-growth
SEHK:1518 Earnings and Revenue Growth August 26th 2021

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. It might be well worthwhile taking a look at our free report on New Century Healthcare Holding's earnings, revenue and cash flow.

A Different Perspective

New Century Healthcare Holding shareholders are down 7.0% for the year, but the broader market is up 8.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. However, the loss over the last year isn't as bad as the 23% per annum loss investors have suffered over the last three years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 3 warning signs for New Century Healthcare Holding (1 shouldn't be ignored) that you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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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