Falling 4.5% this week, Haidilao International Holding’s three-year profit decline (HKG: 6862) could grab investor attention

It hasn’t been the best quarter for Haidilao International Holding Ltd. (HKG: 6862) shareholders, since the share price fell 20% during this period. But don’t be distracted by the great return generated over three years. Over the past three years, the share price has risen 68%: better than the market.

Given that long-term performance has been good but there has been a recent drop of 4.5%, let’s check if the fundamentals match the stock price.

Discover our latest analysis for Haidilao International Holding

In his essay Graham-and-Doddsville super-investors Warren Buffett described how stock prices don’t always rationally reflect a company’s value. An imperfect but reasonable way to gauge how sentiment is changing around a company is to compare earnings per share (EPS) with the stock price.

During the three years of share price growth, Haidilao International Holding has seen its earnings per share (EPS) fall by 0.7% per year.

Based on these numbers, we believe that the decline in earnings per share may not be a good representation of how the company has gone over the years. Since the change in EPS doesn’t seem to correlate with the change in the stock price, it’s worth taking a look at other metrics.

Languishing at just 0.07%, we doubt the dividend is doing much to support the share price. It may well be that Haidilao International Holding’s revenue growth rate of 30% over three years has convinced shareholders to believe in a better future. In this case, the company may sacrifice current earnings per share to drive growth, and perhaps shareholder confidence in better days will be rewarded.

The company’s revenue and profits (over time) are shown in the image below (click to see exact numbers).

SEHK: 6862 Revenue and Revenue Growth September 27, 2021

It’s good to see that there have been some significant insider buys over the past three months. It’s positive. That said, we believe earnings and revenue growth trends are even more important factors to consider. You can see what analysts are predicting for Haidilao International Holding in this interactive graph of future profit estimates.

A different perspective

Haidilao International Holding shareholders are down 45% for the year (including dividends), but the broader market is up 13%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Fortunately, the longer-term story is brighter, with total returns averaging around 19% per year over three years. Sometimes when a good quality long term winner has a low period it turns out to be an opportunity, but you really have to be sure that the quality is there. While it is 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 discovered 4 warning signs for Haidilao International Holding (1 is concerning!) Which you should know before investing here.

Haidilao International Holding isn’t the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider buys, might be just the ticket.

Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks currently trading on the Hong Kong stock exchanges.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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