For many investors, the main point of stock picking is to generate higher returns than the overall market. But if you try your hand at stock picking, you risk returning less than the market. Unfortunately, that's been the case for longer term China Infrastructure & Logistics Group Ltd. (HKG:1719) shareholders, since the share price is down 47% in the last three years, falling well short of the market return of around 26%. The more recent news is of little comfort, with the share price down 32% in a year. Furthermore, it's down 20% in about a quarter. That's not much fun for holders.
Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.
View our latest analysis for China Infrastructure & Logistics Group
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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During five years of share price growth, China Infrastructure & Logistics Group moved from a loss to profitability. We would usually expect to see the share price rise as a result. So given the share price is down it's worth checking some other metrics too.
With revenue flat over three years, it seems unlikely that the share price is reflecting the top line. We're not entirely sure why the share price is dropped, but it does seem likely investors have become less optimistic about the business.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
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. Dive deeper into the earnings by checking this interactive graph of China Infrastructure & Logistics Group's earnings, revenue and cash flow.
A Different Perspective
China Infrastructure & Logistics Group shareholders are down 32% for the year, but the market itself is up 41%. 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 2% 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. 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. For example, we've discovered 2 warning signs for China Infrastructure & Logistics Group (1 is potentially serious!) that you should be aware of before investing here.
We will like China Infrastructure & Logistics Group 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.
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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.