Shenzhen Sea Star TechnologyLtd (SZSE:002137) shareholders notch a 110% return over 1 year, yet earnings have been shrinking

Unfortunately, investing is risky - companies can and do go bankrupt. But if you pick the right stock, you can make a lot more than 100%. For example, the Shenzhen Sea Star Technology Co.,Ltd (SZSE:002137) share price has soared 110% return in just a single year. Also pleasing for shareholders was the 39% gain in the last three months. It is also impressive that the stock is up 70% over three years, adding to the sense that it is a real winner.

Since the stock has added CN¥820m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Shenzhen Sea Star TechnologyLtd

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Over the last twelve months, Shenzhen Sea Star TechnologyLtd actually shrank its EPS by 90%. We do note that there were extraordinary items impacting the result.

Given the share price gain, we doubt the market is measuring progress with EPS. Therefore, it seems likely that investors are putting more weight on metrics other than EPS, at the moment.

However the year on year revenue growth of 5.4% would help. Many businesses do go through a phase where they have to forgo some profits to drive business development, and sometimes its for the best.

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

If you are thinking of buying or selling Shenzhen Sea Star TechnologyLtd stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

It's good to see that Shenzhen Sea Star TechnologyLtd has rewarded shareholders with a total shareholder return of 110% in the last twelve months. That's better than the annualised return of 1.7% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Shenzhen Sea Star TechnologyLtd better, we need to consider many other factors. For example, we've discovered 3 warning signs for Shenzhen Sea Star TechnologyLtd (1 doesn't sit too well with us!) that you should be aware of before investing here.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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.