Takung Art Co., Ltd. (NYSEMKT:TKAT) shareholders should be happy to see the share price up 13% in the last week. But only the myopic could ignore the astounding decline over three years. Indeed, the share price is down a whopping 93% in the last three years. So it's about time shareholders saw some gains. Only time will tell if the company can sustain the turnaround.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.
Takung Art isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally expect to see good revenue growth. 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 Takung Art saw its revenue shrink by 41% per year. That's definitely a weaker result than most pre-profit companies report. The swift share price decline at an annual compound rate of 59%, reflects this weak fundamental performance. Never forget that loss making companies with falling revenue can and do cause losses for everyday investors. It's worth remembering that investors call buying a steeply falling share price 'catching a falling knife' because it is a dangerous pass time.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Take a more thorough look at Takung Art's financial health with this free report on its balance sheet.
A Different Perspective
The last twelve months weren't great for Takung Art shares, which cost holders 50%, while the market was up about 2.4%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, the longer term story isn't pretty, with investment losses running at 59% per year over three years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. You could get a better understanding of Takung Art's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
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 US exchanges.
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