The simplest way to invest in stocks is to buy exchange traded funds. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Guangdong HEC Technology Holding Co., Ltd (SHSE:600673) share price is up 31% in the last 1 year, clearly besting the market return of around 11% (not including dividends). So that should have shareholders smiling. Zooming out, the stock is actually down 2.1% in the last three years.

Since the stock has added CN¥770m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

We don't think that Guangdong HEC Technology Holding'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. It would be hard to believe in a more profitable future without growing revenues.

Guangdong HEC Technology Holding grew its revenue by 4.8% last year. That's not a very high growth rate considering it doesn't make profits. In keeping with the revenue growth, the share price gained 31% in that time. While not a huge gain tht seems pretty reasonable. Given the market doesn't seem too excited about the stock, a closer look at the financial data could pay off, if you can find indications of a stronger growth trend in the future.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

If you are thinking of buying or selling Guangdong HEC Technology Holding stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Guangdong HEC Technology Holding's TSR for the last 1 year was 37%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Guangdong HEC Technology Holding has rewarded shareholders with a total shareholder return of 37% in the last twelve months. That's including the dividend. That gain is better than the annual TSR over five years, which is 0.8%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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 for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Guangdong HEC Technology Holding (at least 2 which don't sit too well with us) , and understanding them should be part of your investment process.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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.