Investors in Zhihu (NYSE:ZH) have unfortunately lost 85% over the last year
Zhihu Inc. (NYSE:ZH) shareholders should be happy to see the share price up 24% in the last month. But that doesn't change the fact that the returns over the last year have been stomach churning. Specifically, the stock price nose-dived 85% in that time. It's not uncommon to see a bounce after a drop like that. 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.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
Check out our latest analysis for Zhihu
Zhihu 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. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last twelve months, Zhihu increased its revenue by 96%. That's a strong result which is better than most other loss making companies. So on the face of it we're really surprised to see the share price down 85% over twelve months. There's clearly something unusual going on here such as an acquisition that hasn't delivered expected profits. What is clear is that the market is not judging the company on its revenue growth right now. Of course, markets do over-react so share price drop may be too harsh.
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 good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. You can see what analysts are predicting for Zhihu in this interactive graph of future profit estimates.
A Different Perspective
We doubt Zhihu shareholders are happy with the loss of 85% over twelve months. That falls short of the market, which lost 19%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. The share price decline has continued throughout the most recent three months, down 27%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for Zhihu you should know about.
Zhihu is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
