While not a mind-blowing move, it is good to see that the Chengdu PUTIAN Telecommunications Cable Company Limited (HKG:1202) share price has gained 19% in the last three months. But that is small recompense for the exasperating returns over three years. Indeed, the share price is down a tragic 58% in the last three years. So the improvement may be a real relief to some. Perhaps the company has turned over a new leaf.
Given that Chengdu PUTIAN Telecommunications Cable 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. 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 three years Chengdu PUTIAN Telecommunications Cable saw its revenue shrink by 33% per year. That's definitely a weaker result than most pre-profit companies report. With no profits and falling revenue it is no surprise that investors have been dumping the stock, pushing the price down by 25% per year over that time. Bagholders or 'baggies' are people who buy more of a stock as the price collapses. They are then left 'holding the bag' if the shares turn out to be worthless. It could be a while before the company repays long suffering shareholders with share price gains.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
Investors in Chengdu PUTIAN Telecommunications Cable had a tough year, with a total loss of 22%, against a market gain of about 3.3%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 14% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand Chengdu PUTIAN Telecommunications Cable better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Chengdu PUTIAN Telecommunications Cable , and understanding them should be part of your investment process.
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.
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