Guangzhou Echom Sci.&Tech.Co.Ltd's (SZSE:002420) growing losses don't faze investors as the stock hikes 11% this past week

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, long term Guangzhou Echom Sci.&Tech.Co.,Ltd (SZSE:002420) shareholders have enjoyed a 59% share price rise over the last half decade, well in excess of the market return of around 6.1% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 17% in the last year.

Since the stock has added CN¥241m 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 Guangzhou Echom Sci.&Tech.Co.Ltd

Given that Guangzhou Echom Sci.&Tech.Co.Ltd didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. Shareholders of unprofitable companies usually desire strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last 5 years Guangzhou Echom Sci.&Tech.Co.Ltd saw its revenue shrink by 9.0% per year. Despite the lack of revenue growth, the stock has returned a respectable 10%, compound, over that time. 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.

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

Guangzhou Echom Sci.&Tech.Co.Ltd shareholders have received returns of 17% over twelve months, which isn't far from the general market return. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 10%. It is possible that management foresight will bring growth well into the future, even if the share price slows down. 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. Case in point: We've spotted 2 warning signs for Guangzhou Echom Sci.&Tech.Co.Ltd you should be aware of.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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.