The main aim of stock picking is to find the market-beating stocks. But even the best stock picker will only win with some selections. So we wouldn't blame long term Next Digital Limited (HKG:282) shareholders for doubting their decision to hold, with the stock down 44% over a half decade.
Next Digital 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. 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 half a decade Next Digital reduced its trailing twelve month revenue by 17% for each year. That's definitely a weaker result than most pre-profit companies report. On the face of it we'd posit the share price fall of 8% compound, over five years is well justified by the fundamental deterioration. We doubt many shareholders are delighted with this share price performance. Risk averse investors probably wouldn't like this one much.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Take a more thorough look at Next Digital's financial health with this free report on its balance sheet.
A Different Perspective
While the broader market gained around 30% in the last year, Next Digital shareholders lost 7.6%. 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, longer term shareholders are suffering worse, given the loss of 8% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. It's always interesting to track share price performance over the longer term. But to understand Next Digital better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Next Digital (of which 2 are a bit concerning!) you should know about.
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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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. 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.
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