If You Had Bought Mr. Onion International (GTSM:2740) Stock Five Years Ago, You'd Be Sitting On A 92% Loss, Today

By
Simply Wall St
Published
February 20, 2020
GTSM:2740

Mr. Onion International Co., Ltd (GTSM:2740) shareholders should be happy to see the share price up 10% in the last quarter. But that doesn't change the fact that the returns over the last half decade have been stomach churning. Like a ship taking on water, the share price has sunk 92% in that time. The recent bounce might mean the long decline is over, but we are not confident. The important question is if the business itself justifies a higher share price in the long term.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

Check out our latest analysis for Mr. Onion International

Because Mr. Onion International 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. When a company doesn't make profits, we'd generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last five years Mr. Onion International saw its revenue shrink by 24% per year. That's definitely a weaker result than most pre-profit companies report. So it's not that strange that the share price dropped 40% per year in that period. We don't think this is a particularly promising picture. Ironically, that behavior could create an opportunity for the contrarian investor - but only if there are good reasons to predict a brighter future.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

GTSM:2740 Income Statement, February 20th 2020
GTSM:2740 Income Statement, February 20th 2020

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

A Different Perspective

Mr. Onion International shareholders are down 70% for the year, but the market itself is up 18%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 39% per year over five years. We realise that Buffett 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 5 warning signs for Mr. Onion International (3 are potentially serious!) that you should be aware of before investing here.

Of course Mr. Onion International may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

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