Kudan (TSE:4425) adds JP¥2.7b to market cap in the past 7 days, though investors from five years ago are still down 60%

This month, we saw the Kudan Inc. (TSE:4425) up an impressive 31%. But don't envy holders -- looking back over 5 years the returns have been really bad. In fact, the share price has declined rather badly, down some 60% in that time. So is the recent increase sufficient to restore confidence in the stock? Not yet. However, in the best case scenario (far from fait accompli), this improved performance might be sustained.

While the stock has risen 24% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

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Because Kudan made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last half decade, Kudan saw its revenue increase by 25% per year. That's better than most loss-making companies. Unfortunately for shareholders the share price has dropped 10% per year - disappointing considering the growth. This could mean high expectations have been tempered, potentially because investors are looking to the bottom line. If you think the company can keep up its revenue growth, you'd have to consider the possibility that there's an opportunity here.

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

If you are thinking of buying or selling Kudan stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

Kudan shareholders are down 3.6% for the year, but the market itself is up 24%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, longer term shareholders are suffering worse, given the loss of 10% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. 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 - Kudan has 4 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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.