Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the Hengtai Securities Co., Ltd. (HKG:1476) share price is up 32% in the last 5 years, clearly besting the market decline of around 18% (ignoring dividends).
The past week has proven to be lucrative for Hengtai Securities investors, so let's see if fundamentals drove the company's five-year performance.
See our latest analysis for Hengtai Securities
Because Hengtai Securities made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
For the last half decade, Hengtai Securities can boast revenue growth at a rate of 1.8% per year. That's not a very high growth rate considering the bottom line. While it's hard to say just how much value the company added over five years, the annualised share price gain of 6% seems about right. We'd be looking for the underlying business to grow revenue a bit faster.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
We regret to report that Hengtai Securities shareholders are down 24% for the year. Unfortunately, that's worse than the broader market decline of 7.4%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 6%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Hengtai Securities (of which 1 is significant!) you should know about.
We will like Hengtai Securities 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 Hong Kong 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.