As an investor, mistakes are inevitable. But really big losses can really drag down an overall portfolio. So take a moment to sympathize with the long term shareholders of Qudian Inc. (NYSE:QD), who have seen the share price tank a massive 87% over a three year period. That would be a disturbing experience. The more recent news is of little comfort, with the share price down 51% in a year. Even worse, it's down 29% in about a month, which isn't fun at all. However, we note the price may have been impacted by the broader market, which is down 13% in the same time period. While a drop like that is definitely a body blow, money isn't as important as health and happiness.
Since Qudian has shed CN¥47m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Qudian saw its EPS decline at a compound rate of 33% per year, over the last three years. The share price decline of 49% is actually steeper than the EPS slippage. So it seems the market was too confident about the business, in the past. The less favorable sentiment is reflected in its current P/E ratio of 2.58.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Dive deeper into Qudian's key metrics by checking this interactive graph of Qudian's earnings, revenue and cash flow.
A Different Perspective
Qudian shareholders are down 51% for the year, falling short of the market return. The market shed around 10%, no doubt weighing on the stock price. Shareholders have lost 23% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. 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 - Qudian has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.
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 US 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.