If You Had Bought AJ NetworksLtd's (KRX:095570) Shares Five Years Ago You Would Be Down 50%

While it may not be enough for some shareholders, we think it is good to see the AJ Networks Co.,Ltd. (KRX:095570) share price up 11% in a single quarter. But if you look at the last five years the returns have not been good. After all, the share price is down 50% in that time, significantly under-performing the market.

See our latest analysis for AJ NetworksLtd

AJ NetworksLtd wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Shareholders of unprofitable companies usually expect strong revenue growth. 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.

Over five years, AJ NetworksLtd grew its revenue at 1.6% per year. That's not a very high growth rate considering it doesn't make profits. Given the weak growth, the share price fall of 8% isn't particularly surprising. Investors should consider how bad the losses are, and whether the company can make it to profitability with ease. It could be worth putting it on your watchlist and revisiting when it makes its maiden profit.

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 AJ NetworksLtd stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for AJ NetworksLtd the TSR over the last 5 years was -42%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Investors in AJ NetworksLtd had a tough year, with a total loss of 16% (including dividends), against a market gain of about 46%. 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 7% 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 2 warning signs for AJ NetworksLtd (1 is concerning!) that you should be aware of before investing here.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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