The Hongkong and Shanghai Hotels, Limited (HKG:45) shareholders should be happy to see the share price up 12% in the last month. But that doesn’t change the fact that the returns over the last three years have been less than pleasing. In fact, the share price is down 22% in the last three years, falling well short of the market return.
While the stock has risen 6.3% in the past week but long term shareholders are still in the red, let’s see what the fundamentals can tell us.
Hongkong and Shanghai Hotels 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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.
In the last three years, Hongkong and Shanghai Hotels saw its revenue grow by 34% per year, compound. That is faster than most pre-profit companies. While its revenue increased, the share price dropped at a rate of 7% per year. That seems like an unlucky result for holders. It’s possible that the prior share price assumed unrealistically high future growth. Before considering a purchase, investors should consider how quickly expenses are growing, relative to revenue.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
This free interactive report on Hongkong and Shanghai Hotels’ balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
Hongkong and Shanghai Hotels shareholders gained a total return of 11% during the year. But that return falls short of the market. On the bright side, that’s still a gain, and it is certainly better than the yearly loss of about 1.4% endured over half a decade. So this might be a sign the business has turned its fortunes around. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
We will like Hongkong and Shanghai Hotels better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) 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.
Valuation is complex, but we’re here to simplify it.
Discover if Hongkong and Shanghai Hotels might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.
