Investors ignore increasing losses at ChinYang Chemical (KRX:051630) as stock jumps 29% this past week

The simplest way to invest in stocks is to buy exchange traded funds. But investors can boost returns by picking market-beating companies to own shares in. To wit, the ChinYang Chemical Corporation (KRX:051630) share price is 63% higher than it was a year ago, much better than the market decline of around 2.2% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! Unfortunately the longer term returns are not so good, with the stock falling 17% in the last three years.

Since the stock has added ₩22b 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 ChinYang Chemical

Because ChinYang Chemical 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. 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.

ChinYang Chemical actually shrunk its revenue over the last year, with a reduction of 11%. Despite the lack of revenue growth, the stock has returned a solid 63% the last twelve months. To us that means that there isn't a lot of correlation between the past revenue performance and the share price, but a closer look at analyst forecasts and the bottom line may well explain a lot.

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

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

What About The Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between ChinYang Chemical's total shareholder return (TSR) and its share price return. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. ChinYang Chemical hasn't been paying dividends, but its TSR of 79% exceeds its share price return of 63%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

We're pleased to report that ChinYang Chemical shareholders have received a total shareholder return of 79% over one year. Notably the five-year annualised TSR loss of 0.6% per year compares very unfavourably with the recent share price performance. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. It's always interesting to track share price performance over the longer term. But to understand ChinYang Chemical better, we need to consider many other factors. For instance, we've identified 4 warning signs for ChinYang Chemical (3 make us uncomfortable) that you should be aware of.

We will like ChinYang Chemical better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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