Investors can approximate the average market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. That downside risk was realized by Common Splendor International Health Industry Group Limited (HKG:286) shareholders over the last year, as the share price declined 32%. That's disappointing when you consider the market returned -5.4%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 25% in three years. There was little comfort for shareholders in the last week as the price declined a further 1.8%.
Common Splendor International Health Industry Group isn't a profitable company, so 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. 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.
Common Splendor International Health Industry Group's revenue didn't grow at all in the last year. In fact, it fell 29%. That looks pretty grim, at a glance. The stock price has languished lately, falling 32% in a year. What would you expect when revenue is falling, and it doesn't make a profit? We think most holders must believe revenue growth will improve, or else costs will decline.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
It's probably worth noting that the CEO is paid less than the median at similar sized 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. Dive deeper into the earnings by checking this interactive graph of Common Splendor International Health Industry Group's earnings, revenue and cash flow.
A Different Perspective
We regret to report that Common Splendor International Health Industry Group shareholders are down 32% for the year. Unfortunately, that's worse than the broader market decline of 5.4%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 1.8% per year over five years. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
But note: Common Splendor International Health Industry Group may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.
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.
If you spot an error that warrants correction, please contact the editor at email@example.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. Thank you for reading.