Further weakness as Toda Kogyo (TSE:4100) drops 10% this week, taking three-year losses to 43%

For many investors, the main point of stock picking is to generate higher returns than the overall market. But if you try your hand at stock picking, you risk returning less than the market. We regret to report that long term Toda Kogyo Corp. (TSE:4100) shareholders have had that experience, with the share price dropping 43% in three years, versus a market return of about 35%. More recently, the share price has dropped a further 15% in a month. But this could be related to poor market conditions -- stocks are down 11% in the same time.

If the past week is anything to go by, investor sentiment for Toda Kogyo isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

View our latest analysis for Toda Kogyo

Toda Kogyo isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally hope to see good revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

In the last three years Toda Kogyo saw its revenue shrink by 3.4% per year. That's not what investors generally want to see. The annual decline of 13% per year in that period has clearly disappointed holders. And with no profits, and weak revenue, are you surprised? However, in this kind of situation you can sometimes find opportunity, where sentiment is negative but the company is actually making good progress.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

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

A Different Perspective

Investors in Toda Kogyo had a tough year, with a total loss of 14%, against a market gain of about 12%. 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 3% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Toda Kogyo better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Toda Kogyo you should know about.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com