These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the Anyuan Coal Industry Group Co., Ltd. (SHSE:600397) share price is up 14% in the last five years, slightly above the market return. Over the last year the stock price is up, albeit only a modest 3.9%.
After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.
Anyuan Coal Industry Group isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally hope to see good revenue growth. 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.
In the last 5 years Anyuan Coal Industry Group saw its revenue grow at 1.5% per year. Put simply, that growth rate fails to impress. While it's hard to say just how much value the company added over five years, the annualised share price gain of 3% seems about right. We'd be looking for the underlying business to grow revenue a bit faster.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Take a more thorough look at Anyuan Coal Industry Group's financial health with this free report on its balance sheet.
A Different Perspective
Anyuan Coal Industry Group shareholders are up 3.9% for the year. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 3% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Anyuan Coal Industry Group , and understanding them should be part of your investment process.
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.
