The simplest way to invest in stocks is to buy exchange traded funds. But you can significantly boost your returns by picking above-average stocks. For example, the Tatwah Smartech Co.,Ltd (SZSE:002512) share price is up 49% in the last 1 year, clearly besting the market decline of around 6.3% (not including dividends). That's a solid performance by our standards! Unfortunately the longer term returns are not so good, with the stock falling 2.8% in the last three years.

Since the stock has added CN¥548m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Tatwah SmartechLtd

Because Tatwah SmartechLtd 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 expect strong revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

In the last year Tatwah SmartechLtd saw its revenue grow by 35%. That's a fairly respectable growth rate. Buyers pushed the share price 49% in response, which isn't unreasonable. If the company can maintain the revenue growth, the share price could go higher still. But it's crucial to check profitability and cash flow before forming a view on the future.

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

It's good to see that Tatwah SmartechLtd has rewarded shareholders with a total shareholder return of 49% in the last twelve months. There's no doubt those recent returns are much better than the TSR loss of 6% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. 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 2 warning signs for Tatwah SmartechLtd that you should be aware of before investing here.

If you are like me, then you will not want to miss this free list of growing companies 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.