Even the best investor on earth makes unsuccessful investments. But it would be foolish to simply accept every extremely large loss as an inevitable part of the game. We wouldn't blame Wanka Online Inc. (HKG:1762) shareholders if they were still in shock after the stock dropped like a lead balloon, down 72% in just one year. That'd be enough to make even the strongest stomachs churn. Because Wanka Online hasn't been listed for many years, the market is still learning about how the business performs. The falls have accelerated recently, with the share price down 26% in the last three months. However, one could argue that the price has been influenced by the general market, which is down 15% in the same timeframe.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the last year Wanka Online grew its earnings per share, moving from a loss to a profit.
We're surprised that the share price is lower given that improvement. If the improved profitability is a sign of things to come, then right now may prove the perfect time to pop this stock on your watchlist.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
Wanka Online shareholders are down 72% for the year, even worse than the market loss of 17%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. With the stock down 26% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. 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. For example, we've discovered 2 warning signs for Wanka Online (1 is a bit concerning!) that you should be aware of before investing here.
There are plenty of other companies that have insiders buying up shares. You probably do 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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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