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Should National Arts Entertainment and Culture Group (HKG:8228) Be Disappointed With Their 41% Profit?

Simply Wall St

Stock pickers are generally looking for stocks that will outperform the broader market. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, long term National Arts Entertainment and Culture Group Limited (HKG:8228) shareholders have enjoyed a 41% share price rise over the last half decade, well in excess of the market return of around 2.1% (not including dividends).

See our latest analysis for National Arts Entertainment and Culture Group

Because National Arts Entertainment and Culture Group made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. When a company doesn't make profits, we'd generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

For the last half decade, National Arts Entertainment and Culture Group can boast revenue growth at a rate of 39% per year. Even measured against other revenue-focussed companies, that's a good result. While the compound gain of 7.2% per year is good, it's not unreasonable given the strong revenue growth. If the strong revenue growth continues, we'd expect the share price to follow, in time. Opportunity lies where the market hasn't fully priced growth in the underlying business.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

SEHK:8228 Income Statement, January 16th 2020

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. This free interactive report on National Arts Entertainment and Culture Group's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

Investors in National Arts Entertainment and Culture Group had a tough year, with a total loss of 29%, against a market gain of about 9.4%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 7.2% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand National Arts Entertainment and Culture Group better, we need to consider many other factors. Take risks, for example - National Arts Entertainment and Culture Group has 4 warning signs (and 2 which are significant) 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 editorial-team@simplywallst.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.

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.