Stock Analysis

A Look At 3SBio's (HKG:1530) Share Price Returns

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SEHK:1530
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If you love investing in stocks you're bound to buy some losers. But long term 3SBio Inc. (HKG:1530) shareholders have had a particularly rough ride in the last three year. Sadly for them, the share price is down 58% in that time. And the ride hasn't got any smoother in recent times over the last year, with the price 30% lower in that time. The falls have accelerated recently, with the share price down 18% in the last three months.

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There is no denying that markets are sometimes efficient, but prices do not always reflect 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.

During the unfortunate three years of share price decline, 3SBio actually saw its earnings per share (EPS) improve by 18% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

We note that, in three years, revenue has actually grown at a 17% annual rate, so that doesn't seem to be a reason to sell shares. This analysis is just perfunctory, but it might be worth researching 3SBio more closely, as sometimes stocks fall unfairly. This could present an opportunity.

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:1530 Earnings and Revenue Growth January 4th 2021

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for 3SBio in this interactive graph of future profit estimates.

A Different Perspective

Investors in 3SBio had a tough year, with a total loss of 30%, against a market gain of about 8.0%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 6% per year over five years. 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. 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.

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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