More weakness as Digital Domain Holdings (HKG:547) drops 13% this week, taking five-year losses to 86%

Some stocks are best avoided. It hits us in the gut when we see other investors taking a loss. For example, we sympathize with anyone who has been caught Digital Domain Holdings Limited (HKG:547) in the five years that saw its share price drop 86%. And we doubt long-term believers are the only worried holders, as the stock price has fallen 48% in the last twelve months. Shareholders have had an even tougher race lately, with the share price falling 24% in the past 90 days. We note that the company released results fairly recently; and the market is hardly thrilled. You can view the latest figures in our corporate report. We really feel for the shareholders in this scenario. It’s a good reminder of the importance of diversification, and it’s worth keeping in mind that there’s more to life than just money, anyway.

Given that the past week has been tough for shareholders, let’s take a look at the fundamentals and see what we can learn.

Check out our latest analysis for Digital Domain Holdings

Since Digital Domain Holdings has not made a profit in the last twelve months, we will focus on revenue growth to get a quick look at its business development. Generally speaking, companies without profits should increase their revenue every year, and at a good pace. Some companies are willing to defer profitability to increase revenue faster, but in this case, good revenue growth is expected.

Over five years, Digital Domain Holdings grew its revenue by 4.0% per year. It’s not a very high growth rate since it’s not making a profit. Nonetheless, it’s fair to say that the rapid decline in the stock price (down 13%, compound, over five years) suggests that the market is very disappointed with this level of growth. We’d be pretty cautious about this one, though the sell-off might be too harsh. We recommend that you focus any further research on the likelihood of profitability in the foreseeable future, given the low revenue growth.

You can see how earnings and income have changed over time in the image below (click on the graph to see exact values).

SEHK: 547 Profit and Revenue Growth September 15, 2022

We consider it positive that insiders have made significant purchases over the past year. That said, most people consider profit and revenue growth trends to be a more meaningful guide to the business. It might be interesting to take a look at our free Digital Domain Holdings earnings, revenue and cash flow report.

A different perspective

We regret to report that Digital Domain Holdings shareholders are down 48% for the year. Unfortunately, this is worse than the general market decline of 21%. However, it could simply be that the stock price was impacted by greater market jitters. It might be worth keeping an eye on the fundamentals, in case there is a good opportunity. Unfortunately, last year’s performance capped a bad run, with shareholders facing a total loss of 13% per year over five years. Generally speaking, long-term stock price weakness can be a bad sign, though contrarian investors might want to hunt for the stock in hopes of a turnaround. I find it very interesting to look at stock price over the long term as a proxy for company performance. But to really get insight, we also need to consider other information. To this end, you should be aware of the 2 warning signs we spotted with Digital Domain Holdings.

If you like buying stocks alongside management then you might love this free list of companies. (Hint: insiders bought them).

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

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

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