Ningbo Shenglong Automotive Powertrain SystemLtd (SHSE:603178) rallies 8.9% this week, taking five-year gains to 112%

When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, you can make far more than 100% on a really good stock. For instance, the price of Ningbo Shenglong Automotive Powertrain System Co.,Ltd. (SHSE:603178) stock is up an impressive 105% over the last five years. In more good news, the share price has risen 17% in thirty days.

Since the stock has added CN¥390m 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 Ningbo Shenglong Automotive Powertrain SystemLtd

We don't think that Ningbo Shenglong Automotive Powertrain SystemLtd'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. It would be hard to believe in a more profitable future without growing revenues.

In the last 5 years Ningbo Shenglong Automotive Powertrain SystemLtd saw its revenue grow at 5.4% per year. That's not a very high growth rate considering the bottom line. In comparison, the share price rise of 15% per year over the last half a decade is pretty impressive. While we wouldn't be overly concerned, it might be worth checking whether you think the fundamental business gains really justify the share price action. It may be that the market is pretty optimistic about Ningbo Shenglong Automotive Powertrain SystemLtd.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

Take a more thorough look at Ningbo Shenglong Automotive Powertrain SystemLtd's financial health with this free report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Ningbo Shenglong Automotive Powertrain SystemLtd, it has a TSR of 112% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While the broader market gained around 14% in the last year, Ningbo Shenglong Automotive Powertrain SystemLtd shareholders lost 41% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 16% per year over half a decade. 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - Ningbo Shenglong Automotive Powertrain SystemLtd has 2 warning signs we think you should be aware of.

But note: Ningbo Shenglong Automotive Powertrain SystemLtd may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.