It's not possible to invest over long periods without making some bad investments. But you want to avoid the really big losses like the plague. So consider, for a moment, the misfortune of China Rongzhong Financial Holdings Company Limited (HKG:3963) investors who have held the stock for three years as it declined a whopping 75%. That would be a disturbing experience. The more recent news is of little comfort, with the share price down 25% in a year. Shareholders have had an even rougher run lately, with the share price down 11% in the last 90 days. Of course, this share price action may well have been influenced by the 5.5% decline in the broader market, throughout the period.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
China Rongzhong Financial Holdings has made a profit in the past. However, it made a loss in the last twelve months, suggesting profit may be an unreliable metric at this stage. Other metrics may better explain the share price move.
We think that the revenue decline over three years, at a rate of 20% per year, probably had some shareholders looking to sell. After all, if revenue keeps shrinking, it may be difficult to find earnings growth in the future.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
The last twelve months weren't great for China Rongzhong Financial Holdings shares, which performed worse than the market, costing holders 25%. Meanwhile, the broader market slid about 4.1%, likely weighing on the stock. Unfortunately, the longer term story isn't pretty, with investment losses running at 37% per year over three years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
We will like China Rongzhong Financial Holdings better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.
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.
If you spot an error that warrants correction, please contact the editor at email@example.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. Thank you for reading.