U.S. markets closed

If You Had Bought Minshang Creative Technology Holdings (HKG:1632) Stock Three Years Ago, You'd Be Sitting On A 89% Loss, Today

Simply Wall St

It is doubtless a positive to see that the Minshang Creative Technology Holdings Limited (HKG:1632) share price has gained some 44% in the last three months. But only the myopic could ignore the astounding decline over three years. To wit, the share price sky-dived 89% in that time. Arguably, the recent bounce is to be expected after such a bad drop. Only time will tell if the company can sustain the turnaround.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

See our latest analysis for Minshang Creative Technology Holdings

Minshang Creative Technology Holdings wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. 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.

Over three years, Minshang Creative Technology Holdings grew revenue at 24% per year. That's well above most other pre-profit companies. So why has the share priced crashed 52% per year, in the same time? The share price makes us wonder if there is an issue with profitability. Sometimes fast revenue growth doesn't lead to profits. If the company is low on cash, it may have to raise capital soon.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

SEHK:1632 Income Statement May 16th 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. It might be well worthwhile taking a look at our free report on Minshang Creative Technology Holdings's earnings, revenue and cash flow.

A Different Perspective

Minshang Creative Technology Holdings shareholders are down 57% for the year, falling short of the market return. The market shed around 8.8%, no doubt weighing on the stock price. The three-year loss of 52% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Minshang Creative Technology Holdings (at least 1 which is significant) , 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.

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.