Shandong Sito Bio-technology (SZSE:300583) jumps 16% this week, taking three-year gains to 97%

By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. Just take a look at Shandong Sito Bio-technology Co., Ltd. (SZSE:300583), which is up 90%, over three years, soundly beating the market decline of 18% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 52% in the last year, including dividends.

Since the stock has added CN¥634m 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 Shandong Sito Bio-technology

Shandong Sito Bio-technology isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last 3 years Shandong Sito Bio-technology saw its revenue grow at 4.4% per year. That's not a very high growth rate considering it doesn't make profits. The modest growth is probably broadly reflected in the share price, which is up 24%, per year over 3 years. The real question is when the business will generate profits, and how quickly they will grow. Given the market doesn't seem too excited about the stock, a closer look at the financial data could pay off, if you can find indications of a stronger growth trend in the future.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

This free interactive report on Shandong Sito Bio-technology's balance sheet strength is a great place to start, if you want to investigate the stock further.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Shandong Sito Bio-technology's TSR for the last 3 years was 97%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that Shandong Sito Bio-technology has rewarded shareholders with a total shareholder return of 52% in the last twelve months. That's including the dividend. That gain is better than the annual TSR over five years, which is 6%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Shandong Sito Bio-technology better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Shandong Sito Bio-technology you should be aware of.

But note: Shandong Sito Bio-technology 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.