Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. For example, the Comba Telecom Systems Holdings Limited (HKG:2342) share price is up 33% in the last 5 years, clearly besting the market decline of around 9.1% (ignoring dividends).

Since the stock has added HK$470m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

View our latest analysis for Comba Telecom Systems Holdings

Because Comba Telecom Systems Holdings 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. When a company doesn't make profits, we'd generally expect 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.

Over the last half decade Comba Telecom Systems Holdings' revenue has actually been trending down at about 1.2% per year. Even though revenue hasn't increased, the stock actually gained 6%, per year, during the same period. It's probably worth checking other factors such as the profitability, to try to understand the share price action. It may not be reflecting the revenue.

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

It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. If you are thinking of buying or selling Comba Telecom Systems Holdings stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

While the broader market lost about 21% in the twelve months, Comba Telecom Systems Holdings shareholders did even worse, losing 29%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 6%, each year, over five years. 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. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares - and the price they paid.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK 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.