Despite shrinking by CN¥1.1b in the past week, GuoChuang SoftwareLtd (SZSE:300520) shareholders are still up 30% over 5 years

GuoChuang Software Co.,Ltd. (SZSE:300520) shareholders might be concerned after seeing the share price drop 14% in the last week. But that doesn't change the fact that the returns over the last five years have been pleasing. Its return of 27% has certainly bested the market return!

Since the long term performance has been good but there's been a recent pullback of 14%, let's check if the fundamentals match the share price.

See our latest analysis for GuoChuang SoftwareLtd

Because GuoChuang SoftwareLtd made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. When a company doesn't make profits, we'd generally hope to see good revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

In the last 5 years GuoChuang SoftwareLtd saw its revenue grow at 11% per year. That's a fairly respectable growth rate. Revenue has been growing at a reasonable clip, so it's debatable whether the share price growth of 5% full reflects the underlying business growth. If revenue growth can maintain for long enough, it's likely profits will flow. Lack of earnings means you have to project further into the future justify the valuation on the basis of future free cash flow.

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 GuoChuang SoftwareLtd's balance sheet strength is a great place to start, if you want to investigate the stock further.

What About The Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between GuoChuang SoftwareLtd's total shareholder return (TSR) and its share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Its history of dividend payouts mean that GuoChuang SoftwareLtd's TSR of 30% over the last 5 years is better than the share price return.

A Different Perspective

GuoChuang SoftwareLtd provided a TSR of 11% over the year. That's fairly close to the broader 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 5%. It is possible that management foresight will bring growth well into the future, even if the share price slows down. It's always interesting to track share price performance over the longer term. But to understand GuoChuang SoftwareLtd better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with GuoChuang SoftwareLtd (at least 2 which can't be ignored) , and understanding them should be part of your investment process.

Of course GuoChuang SoftwareLtd 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.