For many investors, the main point of stock picking is to generate higher returns than the overall market. But if you try your hand at stock picking, your risk returning less than the market. Unfortunately, that's been the case for longer term Realord Group Holdings Limited (HKG:1196) shareholders, since the share price is down 10% in the last three years, falling well short of the market return of around -1.8%. Unhappily, the share price slid 4.1% in the last week.
While Realord Group Holdings made a small profit, in the last year, we think that the market is probably more focussed on the top line growth at the moment. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. It would be hard to believe in a more profitable future without growing revenues.
Over three years, Realord Group Holdings grew revenue at 49% per year. That is faster than most pre-profit companies. The share price drop of 3.6% per year over three years would be considered disappointing by many, so you might argue the company is getting little credit for its impressive revenue growth. It seems likely that actual growth fell short of shareholders' expectations. Still, with high hopes now tempered, now might prove to be an opportunity to buy.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
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
While it's certainly disappointing to see that Realord Group Holdings shares lost 9.1% throughout the year, that wasn't as bad as the market loss of 15%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 0.6% for each year. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. 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. Even so, be aware that Realord Group Holdings is showing 4 warning signs in our investment analysis , and 1 of those is significant...
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.
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