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Is China Education Resources's (CVE:CHN) 275% Share Price Increase Well Justified?

Simply Wall St

When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. Long term China Education Resources Inc. (CVE:CHN) shareholders would be well aware of this, since the stock is up 275% in five years. Also pleasing for shareholders was the 150% gain in the last three months.

Check out our latest analysis for China Education Resources

China Education Resources isn't a profitable company, so it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

In the last 5 years China Education Resources saw its revenue grow at 3.0% per year. Put simply, that growth rate fails to impress. In comparison, the share price rise of 30% per year over the last half a decade is pretty impressive. While we wouldn't be overly concerned, it might be worth checking whether you think the fundamental business gains really justify the share price action. Some might suggest that the sentiment around the stock is rather positive.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

TSXV:CHN Income Statement, August 23rd 2019

Take a more thorough look at China Education Resources's financial health with this free report on its balance sheet.

A Different Perspective

It's nice to see that China Education Resources shareholders have received a total shareholder return of 15% over the last year. However, that falls short of the 30% TSR per annum it has made for shareholders, each year, over five years. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. You could get a better understanding of China Education Resources's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

We will like China Education Resources 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 CA 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 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. Thank you for reading.