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2 Underperforming Holdings to Reduce

Shareholders may want to lower their stakes in these disappointing securities

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Alberto Abaterusso
Aug 10, 2021

Summary

  • Bright Scholar Education Holdings Ltd and Sinopec Shanghai Petrochemical Co Ltd have disappointed their shareholders over the past couple of years, underperforming the S&P 500.
  • They show no signs of improving given poor financials and outlooks.
  • Wall Street has issued lackluster ratings for these stocks.
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Shareholders of Bright Scholar Education Holdings Ltd (

BEDU, Financial) and Sinopec Shanghai Petrochemical Co Ltd (SHI, Financial) are quite disappointed with their investments, as the prices of these stocks have declined dramatically over the past couple of years, underperforming the S&P 500 index. It also appears that their profitability is not improving, and their financial conditions could be better. In essence, there is not much to be positive about. Furthermore, sell-side analysts on Wall Street have issued lackluster ratings for these stocks. Therefore, shareholders may want to consider reducing their stakes in these stocks, in my opinion.

Bright Scholar Education Holdings Ltd

Bright Scholar Education Holdings Ltd (

BEDU, Financial) is a Foshan, People's Republic of China-based provider of K-12 schools and complementary education services, including international and bilingual schools, through 94 schools in mainland China and eight schools located internationally.

Shares have declined by 54% over the past year and 74% over the past five years, underperforming the S&P 500 by 86% and 177%, respectively.

The company is paying an annual dividend of 12 cents per common share, but it is not sustained by a solid balance sheet, as the Altman Z-Score of 0.93 indicates that the company is in distress zones. The interest coverage ratio of 1.82 barely covers the interest expenses the company needs to pay, and the balance sheet is highly leveraged as the debt-equity ratio of 1.66 is far above the industry median. These two indicators tell that there is a significant risk the business could go bankrupt within two years.

The profitability rating ranks moderately well at first glance, as GuruFocus gives it a score of 5 out of 10. However, the capability of the business to generate income has shown a declining performance in recent years, with earnings in decline even as revenue increased strongly over the same period of time. This means that additional sales imply a higher cost.

The share price traded at around $3.48 at close on Aug. 9 for a market capitalization of $415.03 million and a 52-week range of $3.17 to $7.94.

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The 14-day relative strength index of 43 indicates the stock is still far from oversold levels despite the sharp decline in the share price.

The company engages in a tough business as, despite the huge population of Chinese students, educational institutions in mainland China have grown dramatically over the past 20 years as a result of massive government spending on education. Furthermore, as a result of the attempt to increase the efficiency of the Chinese education system, the education offer now focuses much more on tech education than before, prioritizing technical education over humanities studies.

On Wall Street, the stock has one recommendation rating of sell.

Sinopec Shanghai Petrochemical Co Ltd

Sinopec Shanghai Petrochemical Co Ltd is a Shanghai, People's Republic of China-based vendor of petrochemical products in mainland China.

Shares have decreased by 5.4% over the past year and 60.6% over the past five years, underperforming the S&P 500 by 38% and 164%, respectively.

Shareholders of Sinopec Shanghai Petrochemical Co Ltd are getting an annual dividend currently. The company distributed $1.557 per common share on July 30, 2021.

The balance sheet could be more solid since the Altman Z-Score of 2.61 indicates that the company is facing some financial issues. Though this number does not indicate any risk of bankrtupcy, it could create some problems regarding the payment of the dividend. GuruFocus has assigned a financial strength rating of 6 out of 10 to the company.

GuruFocus assigns a score of 5 out of 10 to the company's profitability rating. Over the last few years, revenues have declined slightly, but the Ebitda and the net profit from ongoing operations have dropped more sharply.

The share price traded at around $20.90 at close on Aug. 9 for a market capitalization of $2.26 billion and a 52-week range of $17.03 to $26.80.

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The 14-day relative strength index of 33 indicates the stock is not so far from oversold levels after the share price tumble.

Last July, OPEC and Russia decided to increase their monthly production of oil by 400,000 barrels per day starting this month, which could have negative consequences for the price of the commodity over the next several quarters. If this happens, it may cause a further deterioration of the profitability of the business, dragging the share price down further.

On Wall Street, the stock has one underperform recommendation rating.

Disclosure: I have no positions in any securities mentioned in this article.

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Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The views of this author are solely their own opinion and are not endorsed or guaranteed by GuruFocus.com
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