If you want to compound wealth in the stock market, you can do so by buying an index fund. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). To wit, the Sichuan Discovery Dream Science & Technology Co.,Ltd (SZSE:301213) share price is 20% higher than it was a year ago, much better than the market decline of around 11% (not including dividends) in the same period. So that should have shareholders smiling. Sichuan Discovery Dream Science & TechnologyLtd hasn't been listed for long, so it's still not clear if it is a long term winner.

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

View our latest analysis for Sichuan Discovery Dream Science & TechnologyLtd

We don't think that Sichuan Discovery Dream Science & TechnologyLtd's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

In the last year Sichuan Discovery Dream Science & TechnologyLtd saw its revenue shrink by 30%. The stock is up 20% in that time, a fine performance given the revenue drop. To us that means that there isn't a lot of correlation between the past revenue performance and the share price, but a closer look at analyst forecasts and the bottom line may well explain a lot.

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

It's nice to see that Sichuan Discovery Dream Science & TechnologyLtd shareholders have gained 21% over the last year, including dividends. A substantial portion of that gain has come in the last three months, with the stock up 33% in that time. This suggests the company is continuing to win over new investors. 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. Case in point: We've spotted 3 warning signs for Sichuan Discovery Dream Science & TechnologyLtd you should be aware of, and 2 of them are concerning.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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.