Melco International Development (HKG:200 shareholders incur further losses as stock declines 18% this week, taking five-year losses to 68%

Statistically speaking, long term investing is a profitable endeavour. But no-one is immune from buying too high. For example the Melco International Development Limited (HKG:200) share price dropped 76% over five years. That's an unpleasant experience for long term holders. And some of the more recent buyers are probably worried, too, with the stock falling 48% in the last year. The last week also saw the share price slip down another 18%.

Since Melco International Development has shed HK$1.2b from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

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Melco International Development isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually desire strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last half decade, Melco International Development saw its revenue increase by 3.1% per year. That's not a very high growth rate considering it doesn't make profits. Nonetheless, it's fair to say the rapidly declining share price (down 12%, compound, over five years) suggests the market is very disappointed with this level of growth. We'd be pretty cautious about this one, although the sell-off may be too severe. We'd recommend focussing any further research on the likelihood of profitability in the foreseeable future, given the muted revenue growth.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. If you are thinking of buying or selling Melco International Development stock, you should check out this free report showing analyst profit forecasts.

What About The Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Melco International Development's total shareholder return (TSR) and its share price return. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Dividends have been really beneficial for Melco International Development shareholders, and that cash payout explains why its total shareholder loss of 68%, over the last 5 years, isn't as bad as the share price return.

A Different Perspective

Investors in Melco International Development had a tough year, with a total loss of 30%, against a market gain of about 22%. 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 11% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. To that end, you should be aware of the 1 warning sign we've spotted with Melco International Development .

Melco International Development is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been 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.