If you want to compound wealth in the stock market, you can do so by buying an index fund. But you can significantly boost your returns by picking above-average stocks. For example, the Huafu Fashion Co., Ltd. (SZSE:002042) share price is up 48% in the last 1 year, clearly besting the market decline of around 14% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! Zooming out, the stock is actually down 22% in the last three years.
Since it's been a strong week for Huafu Fashion shareholders, let's have a look at trend of the longer term fundamentals.
We don't think that Huafu Fashion'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. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.
Huafu Fashion actually shrunk its revenue over the last year, with a reduction of 12%. The stock is up 48% in that time, a fine performance given the revenue drop. We can correlate the share price rise with revenue or profit growth, but it seems the market had previously expected weaker results, and sentiment around the stock is improving.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We know that Huafu Fashion has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling Huafu Fashion stock, you should check out this free report showing analyst profit forecasts.
A Different Perspective
It's good to see that Huafu Fashion has rewarded shareholders with a total shareholder return of 48% in the last twelve months. Of course, that includes the dividend. There's no doubt those recent returns are much better than the TSR loss of 3% per year over five years. 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. It's always interesting to track share price performance over the longer term. But to understand Huafu Fashion better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for Huafu Fashion you should be aware of, and 2 of them can't be ignored.
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.