Unless you borrow money to invest, the potential losses are limited. But if you pick the right business to buy shares in, you can make more than you can lose. For example, the Yonghui Superstores Co., Ltd. (SHSE:601933) share price has soared 134% in the last 1 year. Most would be very happy with that, especially in just one year! Better yet, the share price has gained 208% in the last quarter. And shareholders have also done well over the long term, with an increase of 77% in the last three years.

Since the stock has added CN¥8.1b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Yonghui Superstores isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

Yonghui Superstores actually shrunk its revenue over the last year, with a reduction of 13%. So we would not have expected the share price to rise 134%. This is a good example of how buyers can push up prices even before the fundamental metrics show much growth. Of course, it could be that the market expected this revenue drop.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

Yonghui Superstores is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for Yonghui Superstores in this interactive graph of future profit estimates.

A Different Perspective

It's good to see that Yonghui Superstores has rewarded shareholders with a total shareholder return of 134% in the last twelve months. Notably the five-year annualised TSR loss of 1.2% per year compares very unfavourably with the recent share price performance. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. 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. Take risks, for example - Yonghui Superstores has 1 warning sign we think you should be aware of.

We will like Yonghui Superstores better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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

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