Is Solomon Systech (International)'s (HKG:2878) 184% Share Price Increase Well Justified?

When you buy shares in a company, there is always a risk that the price drops to zero. On the other hand, if you find a high quality business to buy (at the right price) you can more than double your money! Take, for example Solomon Systech (International) Limited ( HKG:2878 ). Its share price is already up an impressive 184% in the last twelve months. Also pleasing for shareholders was the 92% gain in the last three months. The longer term returns have not been as good, with the stock price only 10% higher than it was three years ago.

View our latest analysis for Solomon Systech (International)

Given that Solomon Systech (International) didn't make a profit in the last twelve months to 30 June 2020, we'll focus on revenue growth to form a quick view of its business development. 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.

Solomon Systech (International) grew its revenue by 1.1% in the last twelve months to 30 June 2020. That's not great considering the company was losing money during this time. So we wouldn't have expected the share price to rise by 184%. We're happy that investors have made money, though we wonder if the increase will be sustained. It's quite likely that the market is considering other factors, not just revenue growth.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic .

A Different Perspective

We're pleased to report that Solomon Systech (International) shareholders have received a total shareholder return of 184% over one year. That gain is better than the annual TSR over five years, which is 4%. 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 Solomon Systech (International) better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Solomon Systech (International) you should be aware of, and 1 of them shouldn't be ignored.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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

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This article by Simply Wall St is general in nature. 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.
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