Many investors define successful investing as beating the market average over the long term. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term Air China Limited (HKG:753) shareholders, since the share price is down 34% in the last three years, falling well short of the market decline of around 9.4%. Furthermore, it's down 17% in about a quarter. That's not much fun for holders.
View our latest analysis for Air China
Because Air China 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. Shareholders of unprofitable companies usually expect strong revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last three years Air China saw its revenue shrink by 19% per year. That means its revenue trend is very weak compared to other loss making companies. With revenue in decline, the share price decline of 10% per year is hardly undeserved. 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 company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Air China is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling Air China stock, you should check out this free report showing analyst consensus estimates for future profits.
Air China provided a TSR of 22% over the last twelve months. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 4% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 1 warning sign for Air China that you should be aware of.
We will like Air China 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.
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