The art and science of stock market investing requires tolerance for losing money on some of the stocks you buy. But it’s not unreasonable to try to avoid truly shocking capital losses. We wouldn’t blame Fusen Pharmaceutical Company Limited (HKG:1652) shareholders if they were still in shock after the stock plummeted like a lead balloon, down 75% in just one year. While some investors are willing to take this kind of loss, they are usually professionals who spread their bets thinly. Notably, shareholders have also struggled longer term, with a 72% drop over the past three years. More recently, the stock price fell another 19% in one month. But it could be linked to poor market conditions – shares are down 11% in the meantime.
Given that the past week has been tough for shareholders, let’s take a look at the fundamentals and see what we can learn.
Check out our latest analysis for Fusen Pharmaceutical
It is undeniable that markets are sometimes efficient, but prices do not always reflect the underlying performance of companies. An imperfect but reasonable way to gauge changing sentiment around a company is to compare earnings per share (EPS) with the stock price.
In the unfortunate twelve months in which Fusen Pharmaceutical’s stock price fell, it actually saw its earnings per share (EPS) improve by 26%. It is entirely possible that growth expectations have been unreasonable in the past.
It’s fair to say that the stock price doesn’t seem to reflect EPS growth. But we might find different measures that better explain stock price movements.
Given that the yield is quite low, at 1.5%, we doubt the dividend will shed much light on the stock price. Revenues were pretty flat compared to last year, which isn’t too bad. However, it is certainly possible that the market was expecting higher earnings and that the falling share price reflects this disappointment.
You can see how revenue and earnings have changed over time in the image below (click on the graph to see the exact values).
It’s probably worth noting that we saw significant insider buying in the last quarter, which we view as a positive. That said, we believe earnings and revenue growth trends are even more important factors to consider. Before buying or selling a stock, we always recommend a careful review of historical growth trends, available here.
A different perspective
The last twelve months have not been great for shares of Fusen Pharmaceutical, which underperformed the market, costing holders 75% including dividends. Meanwhile, the broader market slipped around 23%, which likely weighed on the stock. The loss of 20% per year over three years is not as bad as the last twelve months, which suggests that the company has not been able to convince the market that it has solved its problems. We would be hesitant to invest in a company with unresolved issues, although some investors will buy troubled stocks if they think the price is attractive enough. It is always interesting to follow the evolution of the share price over the long term. But to better understand Fusen Pharmaceutical, we need to consider many other factors. Take for example the ubiquitous specter of investment risk. We have identified 4 warning signs with Fusen Pharmaceutical (at least 1 of which are potentially serious), and understanding them should be part of your investment process.
There are many other companies whose insiders buy shares. You probably do do not want to miss this free list of growing companies insiders are buying.
Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks currently trading on HK exchanges.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.