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We're definitely into long term investing, but some companies are simply bad investments over any time frame. We really hate to see fellow investors lose their hard-earned money. Imagine if you held China Outfitters Holdings Limited (HKG:1146) for half a decade as the share price tanked 83%. We also note that the stock has performed poorly over the last year, with the share price down 25%. Furthermore, it's down 12% in about a quarter. That's not much fun for holders. But this could be related to the weak market, which is down 7.2% in the same period.
We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
See our latest analysis for China Outfitters Holdings
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the five years over which the share price declined, China Outfitters Holdings's earnings per share (EPS) dropped by 37% each year. This fall in the EPS is worse than the 30% compound annual share price fall. The relatively muted share price reaction might be because the market expects the business to turn around.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
A Different Perspective
While the broader market lost about 8.7% in the twelve months, China Outfitters Holdings shareholders did even worse, losing 25%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, longer term shareholders are suffering worse, given the loss of 30% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. 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. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for China Outfitters Holdings (of which 1 is potentially serious!) you should know about.