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 Education Resources Inc. (CVE:CHN) investors who have held the stock for three years as it declined a whopping 85%. That’d be enough to cause even the strongest minds some disquiet. The more recent news is of little comfort, with the share price down 64% in a year. Furthermore, it’s down 38% in about a quarter. That’s not much fun for holders. But this could be related to the weak market, which is down 21% in the same period.
We really feel for shareholders in this scenario. It’s a good reminder of the importance of diversification, and it’s worth keeping in mind there’s more to life than money, anyway.
Check out our latest analysis for China Education Resources
Given that China Education Resources 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. Shareholders of unprofitable companies usually expect strong revenue growth. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last three years China Education Resources saw its revenue shrink by 11% per year. That’s not what investors generally want to see. Having said that the 47% annualized share price decline highlights the risk of investing in unprofitable companies. This business clearly needs to grow revenues if it is to perform as investors hope. There’s no more than a snowball’s chance in hell that share price will head back to its old highs, in the short term.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
TSXV:CHN Income Statement April 16th 2020
This free interactive report on China Education Resources’s balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
We regret to report that China Education Resources shareholders are down 64% for the year. Unfortunately, that’s worse than the broader market decline of 17%. 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. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 9.0% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. For example, we’ve discovered 3 warning signs for China Education Resources (2 are potentially serious!) that you should be aware of before investing here.
Of course China Education Resources 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 CA 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.