Ruihe Data Technology Holdings (HKG:3680) rallies 25% this week, taking three-year gains to 91%

By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the Ruihe Data Technology Holdings Limited (HKG:3680) share price is up 91% in the last three years, clearly besting the market return of around 28% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 72%.

On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.

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Ruihe Data Technology Holdings wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Shareholders of unprofitable companies usually desire strong revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

In the last 3 years Ruihe Data Technology Holdings saw its revenue shrink by 1.0% per year. Despite the lack of revenue growth, the stock has returned 24%, compound, over three years. If the company is cutting costs profitability could be on the horizon, but the revenue decline is a prima facie concern.

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

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. It might be well worthwhile taking a look at our free report on Ruihe Data Technology Holdings' earnings, revenue and cash flow.

A Different Perspective

We're pleased to report that Ruihe Data Technology Holdings shareholders have received a total shareholder return of 72% over one year. That's better than the annualised return of 0.4% over half a decade, implying that the company is doing better recently. 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 Ruihe Data Technology Holdings better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Ruihe Data Technology Holdings (at least 2 which don't sit too well with us) , and understanding them should be part of your investment process.

Ruihe Data Technology Holdings is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been buying.

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