The last three months have been tough on Advanced Fiber Resources (Zhuhai), Ltd. (SZSE:300620) shareholders, who have seen the share price decline a rather worrying 33%. But that doesn't change the fact that shareholders have received really good returns over the last five years. We think most investors would be happy with the 138% return, over that period. We think it's more important to dwell on the long term returns than the short term returns. The more important question is whether the stock is too cheap or too expensive today.

While the stock has fallen 4.0% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

We don't think that Advanced Fiber Resources (Zhuhai)'s modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

In the last 5 years Advanced Fiber Resources (Zhuhai) saw its revenue grow at 15% per year. That's well above most pre-profit companies. Meanwhile, its share price performance certainly reflects the strong growth, given the share price grew at 19% per year, compound, during the period. This suggests the market has well and truly recognized the progress the business has made. Advanced Fiber Resources (Zhuhai) seems like a high growth stock - so growth investors might want to add it to their watchlist.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Advanced Fiber Resources (Zhuhai), it has a TSR of 143% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

While the broader market lost about 14% in the twelve months, Advanced Fiber Resources (Zhuhai) shareholders did even worse, losing 43% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 19% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should be aware of the 2 warning signs we've spotted with Advanced Fiber Resources (Zhuhai) .

Of course Advanced Fiber Resources (Zhuhai) may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Chinese 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com