The 14% return this week takes Shanghai Welltech AutomationLtd's (SZSE:002058) shareholders three-year gains to 35%

By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. Just take a look at Shanghai Welltech Automation Co.,Ltd. (SZSE:002058), which is up 35%, over three years, soundly beating the market decline of 19% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 9.2%.

Since the stock has added CN¥260m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Check out our latest analysis for Shanghai Welltech AutomationLtd

Shanghai Welltech AutomationLtd wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

In the last 3 years Shanghai Welltech AutomationLtd saw its revenue shrink by 19% per year. Despite the lack of revenue growth, the stock has returned 10%, compound, over three years. Unless the company is going to make profits soon, we would be pretty cautious about it.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free interactive report on Shanghai Welltech AutomationLtd's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

Shanghai Welltech AutomationLtd provided a TSR of 9.2% over the last twelve months. But that was short of the market average. But at least that's still a gain! Over five years the TSR has been a reduction of 5% per year, over five years. So this might be a sign the business has turned its fortunes around. 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. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Shanghai Welltech AutomationLtd you should know about.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.