Ideally, your overall portfolio should beat the market average. But even the best stock picker will only win with some selections. At this point some shareholders may be questioning their investment in Fu Yu Corporation Limited (SGX:F13), since the last five years saw the share price fall 55%. On the other hand the share price has bounced 9.4% over the last week.
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.
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Fu Yu 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. When a company doesn’t make profits, we’d generally hope to see good revenue growth. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Over half a decade Fu Yu reduced its trailing twelve month revenue by 8.1% for each year. While far from catastrophic that is not good. With neither profit nor revenue growth, the loss of 9% per year doesn’t really surprise us. The chance of imminent investor enthusiasm for this stock seems slimmer than Louise Brooks. Not that many investors like to invest in companies that are losing money and not growing revenue.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Take a more thorough look at Fu Yu’s financial health with this free report on its balance sheet.
We’ve already covered Fu Yu’s share price action, but we should also mention its total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Fu Yu’s TSR of was a loss of 43% for the 5 years. That wasn’t as bad as its share price return, because it has paid dividends.
Investors in Fu Yu had a tough year, with a total loss of 19%, against a market gain of about 31%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 7% over the last half decade. We realise that Baron Rothschild has said investors should “buy when there is blood on the streets”, but we caution that investors should first be sure they are buying a high quality business. It’s always interesting to track share price performance over the longer term. But to understand Fu Yu better, we need to consider many other factors. Take risks, for example – Fu Yu has 2 warning signs (and 1 which is a bit concerning) we think you should know about.