For many investors, the main point of stock picking is to generate higher returns than the overall market. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. Unfortunately, that's been the case for longer term The Hongkong and Shanghai Hotels, Limited (HKG:45) shareholders, since the share price is down 42% in the last three years, falling well short of the market decline of around 3.8%. The falls have accelerated recently, with the share price down 24% in the last three months. However, one could argue that the price has been influenced by the general market, which is down 12% in the same timeframe.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

See our latest analysis for Hongkong and Shanghai Hotels

Given that Hongkong and Shanghai Hotels didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. When a company doesn't make profits, we'd generally expect to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

Over the last three years, Hongkong and Shanghai Hotels' revenue dropped 32% per year. That's definitely a weaker result than most pre-profit companies report. On the face of it we'd posit the share price fall of 12% compound, over three years is well justified by the fundamental deterioration. The key question now is whether the company has the capacity to fund itself to profitability, without more cash. The company will need to return to revenue growth as quickly as possible, if it wants to see some enthusiasm from investors.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

A Different Perspective

While it's never nice to take a loss, Hongkong and Shanghai Hotels shareholders can take comfort that their trailing twelve month loss of 14% wasn't as bad as the market loss of around 22%. Unfortunately, last year's performance may indicate unresolved challenges, given that it's worse than the annualised loss of 4% over the last half decade. While some investors do well specializing in buying companies that are struggling (but nonetheless undervalued), don't forget that Buffett said that 'turnarounds seldom turn'. It's always interesting to track share price performance over the longer term. But to understand Hongkong and Shanghai Hotels better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Hongkong and Shanghai Hotels (of which 1 is a bit unpleasant!) you should know about.

Hongkong and Shanghai Hotels is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.