Nanjing Canatal Data-Centre Environmental Tech (SHSE:603912) shareholders notch a 28% return over 1 year, yet earnings have been shrinking

The simplest way to invest in stocks is to buy exchange traded funds. But you can significantly boost your returns by picking above-average stocks. For example, the Nanjing Canatal Data-Centre Environmental Tech Co., Ltd (SHSE:603912) share price is up 26% in the last 1 year, clearly besting the market return of around 12% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! In contrast, the longer term returns are negative, since the share price is 1.6% lower than it was three years ago.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

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There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Over the last twelve months, Nanjing Canatal Data-Centre Environmental Tech actually shrank its EPS by 5.4%.

So we don't think that investors are paying too much attention to EPS. Indeed, when EPS is declining but the share price is up, it often means the market is considering other factors.

We are skeptical of the suggestion that the 0.7% dividend yield would entice buyers to the stock. We think that the revenue growth of 27% could have some investors interested. We do see some companies suppress earnings in order to accelerate revenue growth.

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 Nanjing Canatal Data-Centre Environmental Tech's financial health with this free report on its balance sheet.

A Different Perspective

It's nice to see that Nanjing Canatal Data-Centre Environmental Tech shareholders have received a total shareholder return of 28% over the last year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 3%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. For example, we've discovered 3 warning signs for Nanjing Canatal Data-Centre Environmental Tech (2 can't be ignored!) that you should be aware of before investing here.

Of course Nanjing Canatal Data-Centre Environmental Tech 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.