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Did Changing Sentiment Drive Daohe Global Group's (HKG:915) Share Price Down A Painful 92%?

Simply Wall St

Every investor on earth makes bad calls sometimes. But really bad investments should be rare. So consider, for a moment, the misfortune of Daohe Global Group Limited (HKG:915) investors who have held the stock for three years as it declined a whopping 92%. That would certainly shake our confidence in the decision to own the stock. It's up 4.7% in the last seven days.

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.

See our latest analysis for Daohe Global Group

Given that Daohe Global Group 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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last three years, Daohe Global Group saw its revenue grow by 1.5% per year, compound. Given it's losing money in pursuit of growth, we are not really impressed with that. Nonetheless, it's fair to say the rapidly declining share price (down 57%, compound, over three years) suggests the market is very disappointed with this level of growth. We generally don't try to 'catch the falling knife'. Of course, revenue growth is nice but generally speaking the lower the profits, the riskier the business - and this business isn't making steady profits.

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

SEHK:915 Income Statement, January 23rd 2020

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

A Different Perspective

Investors in Daohe Global Group had a tough year, with a total loss of 20%, against a market gain of about 7.3%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, longer term shareholders are suffering worse, given the loss of 27% doled out over the last five years. 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 example, we've discovered 3 warning signs for Daohe Global Group (1 can't be ignored!) that you should be aware of before investing here.

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 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.