The 12% return this week takes KHD Humboldt Wedag International's (ETR:KWG) shareholders five-year gains to 45%

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. For example, long term KHD Humboldt Wedag International AG (ETR:KWG) shareholders have enjoyed a 45% share price rise over the last half decade, well in excess of the market decline of around 0.4% (not including dividends).

Since it's been a strong week for KHD Humboldt Wedag International shareholders, let's have a look at trend of the longer term fundamentals.

View our latest analysis for KHD Humboldt Wedag International

While KHD Humboldt Wedag International 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. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. It would be hard to believe in a more profitable future without growing revenues.

In the last 5 years KHD Humboldt Wedag International saw its revenue grow at 9.9% per year. That's a fairly respectable growth rate. While the share price has beat the market, compounding at 8% yearly, over five years, there's certainly some potential that the market hasn't fully considered the growth track record. 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 KHD Humboldt Wedag International's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

KHD Humboldt Wedag International shareholders are down 23% for the year, but the market itself is up 13%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 8%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand KHD Humboldt Wedag International better, we need to consider many other factors. Take risks, for example - KHD Humboldt Wedag International has 3 warning signs we think you should be aware of.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on German 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.