Unless you borrow money to invest, the potential losses are limited. On the other hand, if you find a high quality business to buy (at the right price) you can more than double your money! Take, for example Shalby Limited (NSE:SHALBY). Its share price is already up an impressive 163% in the last twelve months. On top of that, the share price is up 48% in about a quarter. This could be related to the recent financial results, released recently - you can catch up on the most recent data by reading our company report. Unfortunately the longer term returns are not so good, with the stock falling 16% in the last three years.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Shalby went from making a loss to reporting a profit, in the last year.
When a company is just on the edge of profitability it can be well worth considering other metrics in order to more precisely gauge growth (and therefore understand share price movements).
We are skeptical of the suggestion that the 0.6% dividend yield would entice buyers to the stock. Shalby's revenue actually dropped 11% over last year. So using a snapshot of key business metrics doesn't give us a good picture of why the market is bidding up the stock.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We know that Shalby has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Shalby
A Different Perspective
It's nice to see that Shalby shareholders have gained 165% (in total) over the last year. That's including the dividend. That certainly beats the loss of about 5% per year over three years. The optimist would say this is evidence that the stock has bottomed, and better days lie ahead. It's always interesting to track share price performance over the longer term. But to understand Shalby better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Shalby you should know about.
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 IN 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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