When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, you can make far more than 100% on a really good stock. Long term Phenix Optical Company Limited (SHSE:600071) shareholders would be well aware of this, since the stock is up 101% in five years. It's even up 11% in the last week.

Since the stock has added CN¥515m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Because Phenix Optical made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Shareholders of unprofitable companies usually desire strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

For the last half decade, Phenix Optical can boast revenue growth at a rate of 11% per year. That's a fairly respectable growth rate. Broadly speaking, this solid progress may well be reflected by the healthy share price gain of 15% per year over five years. Given that the business has made good progress on the top line, it would be worth taking a look at the growth trend. When a growth trend accelerates, be it in revenue or earnings, it can indicate an inflection point for the business, which is can often be an opportunity for investors.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

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.

A Different Perspective

While it's never nice to take a loss, Phenix Optical shareholders can take comfort that their trailing twelve month loss of 6.1% wasn't as bad as the market loss of around 10%. Longer term investors wouldn't be so upset, since they would have made 15%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. 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. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Phenix Optical you should know about.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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.