Generally speaking long term investing is the way to go. But that doesn’t mean long term investors can avoid big losses. For example, after five long years the Hong Kong Education (Int’l) Investments Limited (HKG:1082) share price is a whole 73% lower. That is extremely sub-optimal, to say the least. The silver lining is that the stock is up 1.3% in about a week.
See our latest analysis for Hong Kong Education (Int’l) Investments
Given that Hong Kong Education (Int’l) Investments 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 five years Hong Kong Education (Int’l) Investments saw its revenue shrink by 13% 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 23% per year in that period. This kind of price performance makes us very wary, especially when combined with falling revenue. Ironically, that behavior could create an opportunity for the contrarian investor – but only if there are good reasons to predict a brighter future.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
This free interactive report on Hong Kong Education (Int’l) Investments’s balance sheet strength is a great place to start, if you want to investigate the stock further.
What about the Total Shareholder Return (TSR)?
We’d be remiss not to mention the difference between Hong Kong Education (Int’l) Investments’s total shareholder return (TSR) and its share price return. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Dividends have been really beneficial for Hong Kong Education (Int’l) Investments shareholders, and that cash payout explains why its total shareholder loss of 68%, over the last 5 years, isn’t as bad as the share price return.
A Different Perspective
While it’s certainly disappointing to see that Hong Kong Education (Int’l) Investments shares lost 4.8% throughout the year, that wasn’t as bad as the market loss of 15%. Of far more concern is the 20% p.a. loss served to shareholders over the last five years. This sort of share price action isn’t particularly encouraging, but at least the losses are slowing. 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. Consider for instance, the ever-present spectre of investment risk. We’ve identified 4 warning signs with Hong Kong Education (Int’l) Investments (at least 2 which can’t be ignored) , and understanding them should be part of your investment process.
If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.
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.