By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. Just take a look at Nanjing Red Sun Co.,Ltd. (SZSE:000525), which is up 49%, over three years, soundly beating the market decline of 16% (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.

Given that Nanjing Red SunLtd didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

Over the last three years Nanjing Red SunLtd has grown its revenue at 11% annually. That's a very respectable growth rate. The share price gain of 14% per year shows that the market is paying attention to this growth. If that's the case, then it could be well worth while to research the growth trajectory. Of course, it's always worth considering funding risks when a company isn't profitable.

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.

A Different Perspective

Nanjing Red SunLtd shareholders are down 10% over twelve months, which isn't far from the market return of -11%. However, the loss over the last year isn't as bad as the 7% per annum loss investors have suffered over the last half decade. Generally speaking we'd prefer see an improvement in the fundamental metrics before becoming enthusiastic about the stock. It's always interesting to track share price performance over the longer term. But to understand Nanjing Red SunLtd better, we need to consider many other factors. For example, we've discovered 1 warning sign for Nanjing Red SunLtd that you should be aware of before investing here.

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 Chinese 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.