Even the best stock pickers will make plenty of bad investments. And unfortunately for China Online Education Group (NYSE:COE) shareholders, the stock is a lot lower today than it was a year ago. To wit the share price is down 67% in that time. At least the damage isn't so bad if you look at the last three years, since the stock is down 29% in that time. In the last ninety days we've seen the share price slide 68%.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
The last year saw China Online Education Group's EPS really take off. We don't think the growth guide to the sustainable growth rate in this case, but we do think this sort of increase is impressive. As you can imagine, the share price action therefore perturbs us. So it's worth taking a look at some other metrics.
China Online Education Group's revenue is actually up 32% over the last year. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We know that China Online Education Group has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling China Online Education Group stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
Investors in China Online Education Group had a tough year, with a total loss of 67%, against a market gain of about 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 10% per year over five years. 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. It's always interesting to track share price performance over the longer term. But to understand China Online Education Group better, we need to consider many other factors. For example, we've discovered 2 warning signs for China Online Education Group (1 can't be ignored!) that you should be aware of before investing here.
But note: China Online Education Group may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
This article by Simply Wall St is general in nature. 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.
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