By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. For example, the Zhuhai Aerospace Microchips Science & Technology Co., Ltd. (SZSE:300053) share price is up 38% in the last three years, clearly besting the market decline of around 17% (not including dividends).
After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.
Zhuhai Aerospace Microchips Science & Technology 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 3 years Zhuhai Aerospace Microchips Science & Technology saw its revenue shrink by 37% per year. The revenue growth might be lacking but the share price has gained 11% each year in that time. If the company is cutting costs profitability could be on the horizon, but the revenue decline is a prima facie concern.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
The total return of 10% received by Zhuhai Aerospace Microchips Science & Technology shareholders over the last year isn't far from the market return of -10.0%. The silver lining is that longer term investors would have made a total return of 1.3% per year over half a decade. If the stock price has been impacted by changing sentiment, rather than deteriorating business conditions, it could spell opportunity. 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. For instance, we've identified 2 warning signs for Zhuhai Aerospace Microchips Science & Technology (1 is a bit unpleasant) that you should be aware of.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
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.
