October 28, 2021

Earn Money

Business Life

223) Shareholders Got Unlucky And Saw 85% Of Their Cash Evaporate

Every investor on earth makes bad calls sometimes. But you want to avoid the really big losses like the plague. So take a moment to sympathize with the long term shareholders of Elife Holdings Limited (HKG:223), who have seen the share price tank a massive 85% over a three year period. That would certainly shake our confidence in the decision to own the stock. Shareholders have had an even rougher run lately, with the share price down 31% in the last 90 days.

We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don’t have to lose the lesson.

Check out our latest analysis for Elife Holdings

Given that Elife Holdings didn’t make a profit in the last twelve months, we’ll focus on revenue growth to form a quick view of its business development. When a company doesn’t make profits, we’d generally expect to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

In the last three years, Elife Holdings saw its revenue grow by 20% per year, compound. That’s a fairly respectable growth rate. So it’s hard to believe the share price decline of 47% per year is due to the revenue. More likely, the market was spooked by the cost of that revenue. If you buy into companies that lose money then you always risk losing money yourself. Just don’t lose the lesson.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

SEHK:223 Income Statement, March 8th 2020

It’s probably worth noting we’ve seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

A Different Perspective

While the broader market lost about 5.2% in the twelve months, Elife Holdings shareholders did even worse, losing 6.0%. Having said that, it’s inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. However, the loss over the last year isn’t as bad as the 28% per annum loss investors have suffered over the last half decade. We’d need to see some sustained improvements in the key metrics before we could muster much enthusiasm. 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 instance, we’ve identified 5 warning signs for Elife Holdings (2 are significant) that you should be aware of.

Elife Holdings is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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

If you spot an error that warrants correction, please contact the editor at [email protected] 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.

Source Article