This week we saw the China Oceanwide Holdings Limited (HKG:715) share price climb by 11%. But that doesn't change the fact that the returns over the last half decade have been stomach churning. Five years have seen the share price descend precipitously, down a full 83%. So we don't gain too much confidence from the recent recovery. The million dollar question is whether the company can justify a long term recovery. 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.
On a more encouraging note the company has added HK$210m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.
Given that China Oceanwide Holdings didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. 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.
In the last five years China Oceanwide Holdings saw its revenue shrink by 11% per year. That's definitely a weaker result than most pre-profit companies report. So it's not altogether surprising to see the share price down 13% per year in the same time period. This kind of price performance makes us very wary, especially when combined with falling revenue. Of course, the poor performance could mean the market has been too severe selling down. That can happen.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
While the broader market gained around 0.9% in the last year, China Oceanwide Holdings shareholders lost 16%. 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. However, the loss over the last year isn't as bad as the 13% per annum loss investors have suffered over the last half decade. 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 China Oceanwide Holdings better, we need to consider many other factors. For instance, we've identified 3 warning signs for China Oceanwide Holdings (2 make us uncomfortable) that you should be aware of.
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 HK exchanges.
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.
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