Stock pickers are generally looking for stocks that will outperform the broader market. Buying under-rated businesses is one path to excess returns. For example, long term Huasu Holdings Co.,Ltd (SZSE:000509) shareholders have enjoyed a 20% share price rise over the last half decade, well in excess of the market return of around 1.8% (not including dividends).

Since the stock has added CN¥537m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

We don't think that Huasu HoldingsLtd's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

For the last half decade, Huasu HoldingsLtd can boast revenue growth at a rate of 42% per year. That's well above most pre-profit companies. While the compound gain of 4% per year is good, it's not unreasonable given the strong revenue growth. If the strong revenue growth continues, we'd hope to see the share price to follow, in time. Opportunity lies where the market hasn't fully priced growth in the underlying business.

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

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

While it's certainly disappointing to see that Huasu HoldingsLtd shares lost 13% throughout the year, that wasn't as bad as the market loss of 19%. Longer term investors wouldn't be so upset, since they would have made 4%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. It's always interesting to track share price performance over the longer term. But to understand Huasu HoldingsLtd better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Huasu HoldingsLtd , 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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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.