Hikal's (NSE:HIKAL) one-year decline in earnings translates into losses for shareholders

It's nice to see the Hikal Limited (NSE:HIKAL) share price up 10% in a week. But that is minimal compensation for the share price under-performance over the last year. After all, the share price is down 45% in the last year, significantly under-performing the market.

On a more encouraging note the company has added ₹2.9b to its market cap in just the last 7 days, so let's see if we can determine what's driven the one-year loss for shareholders.

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Given that Hikal only made minimal earnings in the last twelve months, we'll focus on revenue to gauge its business development. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

In just one year Hikal saw its revenue fall by 6.7%. That's not what investors generally want to see. Shareholders have seen the share price drop 45% in that time. What would you expect when revenue is falling, and it doesn't make a profit? It's hard to escape the conclusion that buyers must envision either growth down the track, cost cutting, or both.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

Take a more thorough look at Hikal's financial health with this free report on its balance sheet.

A Different Perspective

Hikal shareholders are down 44% for the year (even including dividends), but the market itself is up 1.7%. 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. Longer term investors wouldn't be so upset, since they would have made 7%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - Hikal has 3 warning signs (and 1 which is significant) we think you should know about.

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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Indian exchanges.

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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.