Pulling back 13% this week, Patec Precision Industry's TWSE:2236) five-year decline in earnings may be coming into investors focus

Patec Precision Industry Co., Ltd. (TWSE:2236) shareholders might be concerned after seeing the share price drop 20% in the last quarter. But that doesn't change the fact that the returns over the last half decade have been spectacular. Indeed, the share price is up a whopping 713% in that time. So it might be that some shareholders are taking profits after good performance. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain. We love happy stories like this one. The company should be really proud of that performance!

In light of the stock dropping 13% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.

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While Patec Precision Industry 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. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

For the last half decade, Patec Precision Industry can boast revenue growth at a rate of 2.9% per year. Put simply, that growth rate fails to impress. Therefore, we're a little surprised to see the share price gain has been so strong, at 52% per year, compound, over the period. We'll tip our hats to that, any day, but the top-line growth isn't particularly impressive when you compare it to other pre-profit companies. Having said that, a closer look at the numbers might surface good reasons to believe that profits will gush in the future.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

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 Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Patec Precision Industry the TSR over the last 5 years was 902%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We're pleased to report that Patec Precision Industry shareholders have received a total shareholder return of 37% over one year. And that does include the dividend. Having said that, the five-year TSR of 59% a year, is even better. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. It's always interesting to track share price performance over the longer term. But to understand Patec Precision Industry better, we need to consider many other factors. Even so, be aware that Patec Precision Industry is showing 2 warning signs in our investment analysis , you should know about...

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 Taiwanese 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.