IR Resources Limited (HKG:8186) shareholders should be happy to see the share price up 17% in the last month. But the last three years have seen a terrible decline. Indeed, the share price is down a whopping 92% in the last three years. So we're relieved for long term holders to see a bit of uplift. The thing to think about is whether the business has really turned around.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
IR Resources 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. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
Over the last three years, IR Resources's revenue dropped 18% 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 57%, reflects this weak fundamental performance. We prefer leave it to clowns to try to catch falling knives, like this stock. There is a good reason that investors often describe buying a sharply falling stock price as 'trying to catch a falling knife'. Think about it.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
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
Over the last year, IR Resources shareholders took a loss of 58%. In contrast the market gained about 9.4%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The three-year loss of 57% 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 Warren Buffett famously said he likes to 'buy when there is blood on the streets', he also focusses on high quality stocks with solid prospects. It's always interesting to track share price performance over the longer term. But to understand IR Resources better, we need to consider many other factors. Take risks, for example - IR Resources has 6 warning signs (and 2 which make us uncomfortable) we think you should know about.
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 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.
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.