When we invest, we're generally looking for stocks that outperform the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the Zhejiang Great Southeast Corp.Ltd (SZSE:002263) share price is up 43% in the last 5 years, clearly besting the market return of around 2.1% (ignoring dividends).
Since the stock has added CN¥639m 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 Zhejiang Great SoutheastLtd's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.
Over the last half decade Zhejiang Great SoutheastLtd's revenue has actually been trending down at about 1.0% per year. Despite the lack of revenue growth, the stock has returned a respectable 7%, compound, over that time. 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.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. It might be well worthwhile taking a look at our free report on Zhejiang Great SoutheastLtd's earnings, revenue and cash flow.
A Different Perspective
While it's certainly disappointing to see that Zhejiang Great SoutheastLtd shares lost 2.3% throughout the year, that wasn't as bad as the market loss of 13%. Longer term investors wouldn't be so upset, since they would have made 7%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. It's always interesting to track share price performance over the longer term. But to understand Zhejiang Great SoutheastLtd better, we need to consider many other factors. Even so, be aware that Zhejiang Great SoutheastLtd is showing 2 warning signs in our investment analysis , you should know about...
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Chinese exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.