Investors more bullish on Tongyi Carbon Neutral Technology (Xinjiang) (SHSE:600506) this week as stock spikes 17%, 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 in our experience, buying the right stocks can give your wealth a significant boost. For example, the Tongyi Carbon Neutral Technology (Xinjiang) Co., Ltd (SHSE:600506) share price is up 99% in the last 5 years, clearly besting the market return of around 6.9% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 38% in the last year.

The past week has proven to be lucrative for Tongyi Carbon Neutral Technology (Xinjiang) investors, so let's see if fundamentals drove the company's five-year performance.

See our latest analysis for Tongyi Carbon Neutral Technology (Xinjiang)

While Tongyi Carbon Neutral Technology (Xinjiang) 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. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. It would be hard to believe in a more profitable future without growing revenues.

For the last half decade, Tongyi Carbon Neutral Technology (Xinjiang) can boast revenue growth at a rate of 56% per year. That's well above most pre-profit companies. While the compound gain of 15% per year is good, it's not unreasonable given the strong revenue growth. If you think there could be more growth to come, now might be the time to take a close look at Tongyi Carbon Neutral Technology (Xinjiang). Opportunity lies where the market hasn't fully priced growth in the underlying business.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

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

It's good to see that Tongyi Carbon Neutral Technology (Xinjiang) has rewarded shareholders with a total shareholder return of 38% in the last twelve months. That's better than the annualised return of 15% over half a decade, implying that the company is doing better recently. 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. Even so, be aware that Tongyi Carbon Neutral Technology (Xinjiang) is showing 3 warning signs in our investment analysis , and 2 of those are a bit unpleasant...

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.