Flying Technology (SHSE:603488) shareholders notch a 13% CAGR over 5 years, yet earnings have been shrinking

When we invest, we're generally looking for stocks that outperform the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, long term Flying Technology Co., Ltd. (SHSE:603488) shareholders have enjoyed a 61% share price rise over the last half decade, well in excess of the market return of around 18% (not including dividends).

Since the stock has added CN¥292m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Check out our latest analysis for Flying Technology

Given that Flying Technology only made minimal earnings in the last twelve months, we'll focus on revenue to gauge its business development. 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.

For the last half decade, Flying Technology can boast revenue growth at a rate of 5.2% per year. That's not a very high growth rate considering the bottom line. While it's hard to say just how much value the company added over five years, the annualised share price gain of 10% seems about right. We'd be looking for the underlying business to grow revenue a bit faster.

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

Take a more thorough look at Flying Technology'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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Flying Technology the TSR over the last 5 years was 84%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While the broader market gained around 10% in the last year, Flying Technology shareholders lost 8.7% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 13%, 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - Flying Technology has 4 warning signs (and 1 which is concerning) we think you should know about.

Of course Flying Technology may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.