Asia Grocery Distribution Limited (HKG:8413) shareholders might be concerned after seeing the share price drop 25% in the last quarter. But that doesn't change the fact that the returns over the last year have been very strong. During that period, the share price soared a full 242%. So it is important to view the recent reduction in price through that lense. More important, going forward, is how the business itself is going.
We don't think that Asia Grocery Distribution's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.
Asia Grocery Distribution grew its revenue by 14% last year. That's not a very high growth rate considering it doesn't make profits. In contrast, the share price took off during the year, gaining 242%. The business will need a lot more growth to justify that increase. It's quite likely that the market is considering other factors, not just revenue growth.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Take a more thorough look at Asia Grocery Distribution's financial health with this free report on its balance sheet.
A Different Perspective
Asia Grocery Distribution shareholders should be happy with the total gain of 242% over the last twelve months. We regret to report that the share price is down 25% over ninety days. Shorter term share price moves often don't signify much about the business itself. 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. Take risks, for example - Asia Grocery Distribution has 4 warning signs (and 1 which doesn't sit too well with us) we think you should know about.
We will like Asia Grocery Distribution 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 HK exchanges.
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