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Optimism for AK Medical Holdings (HKG:1789) has grown this past week, despite three-year decline in earnings

Simply Wall St ·  08/05 07:15

By buying an index fund, you can roughly match the market return with ease. But if you choose individual stocks with prowess, you can make superior returns. For example, AK Medical Holdings Limited (HKG:1789) shareholders have seen the share price rise 48% over three years, well in excess of the market decline (10%, not including dividends).

Since the stock has added CN¥993m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

View our latest analysis for AK Medical Holdings

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the three years of share price growth, AK Medical Holdings actually saw its earnings per share (EPS) drop 16% per year.

So we doubt that the market is looking to EPS for its main judge of the company's value. Therefore, we think it's worth considering other metrics as well.

The modest 0.3% dividend yield is unlikely to be propping up the share price. It could be that the revenue growth of 9.3% per year is viewed as evidence that AK Medical Holdings is growing. If the company is being managed for the long term good, today's shareholders might be right to hold on.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

earnings-and-revenue-growthSEHK:1789 Earnings and Revenue Growth August 4th 2022

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free report showing analyst forecasts should help you form a view on AK Medical Holdings

A Different Perspective

AK Medical Holdings shareholders are down 30% for the year (even including dividends), falling short of the market return. Meanwhile, the broader market slid about 19%, likely weighing on the stock. Fortunately the longer term story is brighter, with total returns averaging about 15% per year over three years. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. It's always interesting to track share price performance over the longer term. But to understand AK Medical Holdings better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for AK Medical Holdings you should know about.

We will like AK Medical Holdings better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.

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