Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. For example, the Xiezhong International Holdings Limited (HKG:3663) share price is up 48% in the last 5 years, clearly besting than the market return of around -2.9% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 28%.
See our latest analysis for Xiezhong International Holdings
Xiezhong International Holdings isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
For the last half decade, Xiezhong International Holdings can boast revenue growth at a rate of 10% per year. That's a pretty good long term growth rate. While the share price has beat the market, compounding at 8.2% yearly, over five years, there's certainly some potential that the market hasn't fully considered the growth track record. If revenue growth can maintain for long enough, it's likely profits will flow. Lack of earnings means you have to project further into the future justify the valuation on the basis of future free cash flow.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. This free report showing analyst forecasts should help you form a view on Xiezhong International Holdings
A Dividend Lost
It's important to keep in mind that we've been talking about the share price returns, which don't include dividends, while the total shareholder return does. In some ways, TSR is a better measure of how well an investment has performed. Xiezhong International Holdings's TSR over the last 5 years is 53%; better than its share price return. Although the company had to cut dividends, it has paid cash to shareholders in the past.
A Different Perspective
We're pleased to report that Xiezhong International Holdings shareholders have received a total shareholder return of 28% over one year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 8.9% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Xiezhong International Holdings by clicking this link.