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Did Changing Sentiment Drive i-CABLE Communications's (HKG:1097) Share Price Down A Painful 93%?

Simply Wall St

It's not possible to invest over long periods without making some bad investments. But really big losses can really drag down an overall portfolio. So spare a thought for the long term shareholders of i-CABLE Communications Limited (HKG:1097); the share price is down a whopping 93% in the last three years. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. And the ride hasn't got any smoother in recent times over the last year, with the price 33% lower in that time. And the share price decline continued over the last week, dropping some 14%. But this could be related to the soft market, which is down about 6.3% in the same period.

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.

See our latest analysis for i-CABLE Communications

Because i-CABLE Communications made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. 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 i-CABLE Communications saw its revenue shrink by 8.8% per year. That's not what investors generally want to see. Having said that the 58% annualized share price decline highlights the risk of investing in unprofitable companies. We're generally averse to companies with declining revenues, but we're not alone in that. Don't let a share price decline ruin your calm. You make better decisions when you're calm.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

SEHK:1097 Income Statement, February 3rd 2020

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Dive deeper into the earnings by checking this interactive graph of i-CABLE Communications's earnings, revenue and cash flow.

What about the Total Shareholder Return (TSR)?

We've already covered i-CABLE Communications's share price action, but we should also mention its total shareholder return (TSR). 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. Its history of dividend payouts mean that i-CABLE Communications's TSR, which was a 88% drop over the last 3 years, was not as bad as the share price return.

A Different Perspective

While the broader market lost about 5.2% in the twelve months, i-CABLE Communications shareholders did even worse, losing 31%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 30% per year over five years. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality business. 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 4 warning signs for i-CABLE Communications (1 shouldn't be ignored!) that you should be aware of before investing here.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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 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.