Shareholders have faith in loss-making Shanghai STEP Electric (SZSE:002527) as stock climbs 8.7% in past week, taking five-year gain to 99%

Stock pickers are generally looking for stocks that will outperform the broader market. Buying under-rated businesses is one path to excess returns. To wit, the Shanghai STEP Electric share price has climbed 95% in five years, easily topping the market return of 5.7% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 43% in the last year.

Since it's been a strong week for Shanghai STEP Electric shareholders, let's have a look at trend of the longer term fundamentals.

See our latest analysis for Shanghai STEP Electric

Shanghai STEP Electric isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. 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 Shanghai STEP Electric saw its revenue shrink by 3.8% per year. Even though revenue hasn't increased, the stock actually gained 14%, per year, during the same period. To us that suggests that there probably isn't a lot of correlation between the past revenue performance and the share price, but a closer look at analyst forecasts and the bottom line may well explain a lot.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

What About The Total Shareholder Return (TSR)?

We've already covered Shanghai STEP Electric's share price action, but we should also mention its 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. Shanghai STEP Electric's TSR of 99% for the 5 years exceeded its share price return, because it has paid dividends.

A Different Perspective

We're pleased to report that Shanghai STEP Electric shareholders have received a total shareholder return of 43% over one year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 15% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Shanghai STEP Electric (of which 1 is significant!) you should know about.

We will like Shanghai STEP Electric better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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.