If you want to compound wealth in the stock market, you can do so by buying an index fund. But in our experience, buying the right stocks can give your wealth a significant boost. For example, the Gowing Bros. Limited (ASX:GOW) share price is 51% higher than it was five years ago, which is more than the market average. In comparison, the share price is down 3.6% in a year.

So let’s investigate and see if the longer term performance of the company has been in line with the underlying business’ progress.

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Gowing Bros isn’t currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. 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.

In the last 5 years Gowing Bros saw its revenue grow at 0.2% per year. Put simply, that growth rate fails to impress. The modest growth is probably broadly reflected in the share price, which is up 9%, per year over 5 years. The business could be one worth watching but we generally prefer faster revenue growth.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of Gowing Bros’ earnings, revenue and cash flow.

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Gowing Bros’ TSR for the last 5 years was 75%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

Investors in Gowing Bros had a tough year, with a total loss of 0.7% (including dividends), against a market gain of about 13%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn’t be so upset, since they would have made 12%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. Take risks, for example – Gowing Bros has 4 warning signs (and 3 which can’t be ignored) we think you should know about.