Investors push Chengdu Xinzhu Road&Bridge MachineryLTD (SZSE:002480) 9.5% lower this week, company's increasing losses might be to blame

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. For example, the Chengdu Xinzhu Road&Bridge Machinery Co.,LTD (SZSE:002480) share price is up 34% in the last 5 years, clearly besting the market return of around 12% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 6.3% in the last year.

While the stock has fallen 9.5% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

See our latest analysis for Chengdu Xinzhu Road&Bridge MachineryLTD

Chengdu Xinzhu Road&Bridge MachineryLTD 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. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

In the last 5 years Chengdu Xinzhu Road&Bridge MachineryLTD saw its revenue grow at 2.7% per year. Put simply, that growth rate fails to impress. While it's hard to say just how much value the company added over five years, the annualised share price gain of 6% 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).

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

A Different Perspective

Chengdu Xinzhu Road&Bridge MachineryLTD provided a TSR of 6.3% over the last twelve months. But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 6% over half a decade This suggests the company might be improving over 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 1 warning sign for Chengdu Xinzhu Road&Bridge MachineryLTD that you should be aware of before investing here.

But note: Chengdu Xinzhu Road&Bridge MachineryLTD 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.