The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But in contrast you can make much more than 100% if the company does well. For example, the Yes Optoelectronics (Group) Co., Ltd. (SZSE:002952) share price has soared 111% in the last three years. How nice for those who held the stock! On top of that, the share price is up 12% in about a quarter.

Since the stock has added CN¥365m 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 Yes Optoelectronics (Group)'s modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. It would be hard to believe in a more profitable future without growing revenues.

In the last 3 years Yes Optoelectronics (Group) saw its revenue grow at 1.0% per year. That's not a very high growth rate considering it doesn't make profits. In contrast, the stock has popped 28% per year in that time - an impressive result. We'd need to take a closer look at the revenue and profit trends to see whether the improvements might justify that sort of increase. It may be that the market is pretty optimistic about Yes Optoelectronics (Group) if you look to the bottom line.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

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.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Yes Optoelectronics (Group) the TSR over the last 3 years was 120%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Yes Optoelectronics (Group) shareholders are down 28% for the year (even including dividends), but the market itself is up 11%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 5% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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 example, we've discovered 3 warning signs for Yes Optoelectronics (Group) (1 doesn't sit too well with us!) that you should be aware of before investing here.

We will like Yes Optoelectronics (Group) 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.

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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.