Investors more bullish on Anhui Xinli Finance (SHSE:600318) this week as stock rises 9.1%, despite earnings trending downwards over past five years

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, long term Anhui Xinli Finance Co., Ltd. (SHSE:600318) shareholders have enjoyed a 56% share price rise over the last half decade, well in excess of the market return of around 18% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 37% in the last year.

The past week has proven to be lucrative for Anhui Xinli Finance investors, so let's see if fundamentals drove the company's five-year performance.

See our latest analysis for Anhui Xinli Finance

While Anhui Xinli Finance made a small profit, in the last year, we think that the market is probably more focussed on the top line growth at the moment. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. It would be hard to believe in a more profitable future without growing revenues.

Over the last half decade Anhui Xinli Finance's revenue has actually been trending down at about 12% per year. Despite the lack of revenue growth, the stock has returned a respectable 9%, compound, over that time. It's probably worth checking other factors such as the profitability, to try to understand the share price action. It may not be reflecting the revenue.

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

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

A Different Perspective

We're pleased to report that Anhui Xinli Finance shareholders have received a total shareholder return of 37% over one year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 9% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. Take risks, for example - Anhui Xinli Finance has 2 warning signs (and 1 which can't be ignored) we think you should know about.

Of course Anhui Xinli Finance 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.