Shenyang Machine Tool (SZSE:000410) delivers shareholders notable 18% CAGR over 3 years, surging 5.2% in the last week alone - Simply Wall St News

Stock Analysis

By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the Shenyang Machine Tool Co., Ltd. (SZSE:000410) share price is up 63% in the last three years, clearly besting the market decline of around 19% (not including dividends).

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

Check out our latest analysis for Shenyang Machine Tool

While Shenyang Machine Tool 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.

Shenyang Machine Tool actually saw its revenue drop by 3.7% per year over three years. The revenue growth might be lacking but the share price has gained 18% each year in that time. Unless the company is going to make profits soon, we would be pretty cautious about it.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

This free interactive report on Shenyang Machine Tool's balance sheet strength is a great place to start, if you want to investigate the stock further.

Shenyang Machine Tool shareholders are down 1.4% for the year, but the market itself is up 9.3%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 3%, 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. 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 for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Shenyang Machine Tool (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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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Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.

Manufactures and sells machine tools in China and internationally.