The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But in contrast you can make much more than 100% if the company does well. For example, the Dongguan Mentech Optical & Magnetic Co., Ltd. (SZSE:002902) share price has soared 137% in the last three years. How nice for those who held the stock! It's also good to see the share price up 24% over the last quarter.
While this past week has detracted from the company's three-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.
Dongguan Mentech Optical & Magnetic wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. 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.
Dongguan Mentech Optical & Magnetic's revenue trended up 9.8% each year over three years. That's a very respectable growth rate. Broadly speaking, this solid progress may well be reflected by the healthy share price gain of 33% per year over three years. The business has made good progress on the top line, but the market is extrapolating the growth. Some investors like to buy in just after a company becomes profitable, since that can be a powerful inflexion point.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
This free interactive report on Dongguan Mentech Optical & Magnetic's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
It's good to see that Dongguan Mentech Optical & Magnetic has rewarded shareholders with a total shareholder return of 33% in the last twelve months. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 8% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Dongguan Mentech Optical & Magnetic better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Dongguan Mentech Optical & Magnetic you should know about.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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.