Passive investing in index funds can generate returns that roughly match the overall market. But you can significantly boost your returns by picking above-average stocks. For example, the Huafon Microfibre (Shanghai) Co., Ltd. (SZSE:300180) share price is up 81% in the last 1 year, clearly besting the market return of around 1.2% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! It is also impressive that the stock is up 31% over three years, adding to the sense that it is a real winner.

Since the stock has added CN¥2.4b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Huafon Microfibre (Shanghai) isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally hope to see good revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

Over the last twelve months, Huafon Microfibre (Shanghai)'s revenue grew by 17%. We respect that sort of growth, no doubt. Buyers pushed the share price 81% in response, which isn't unreasonable. If revenue stays on trend, there may be plenty more share price gains to come. But before deciding this growth stock is underappreciated, you might want to check out profitability trends (and cash flow)

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

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

We're pleased to report that Huafon Microfibre (Shanghai) shareholders have received a total shareholder return of 81% over one year. There's no doubt those recent returns are much better than the TSR loss of 6% per year over five years. This makes us a little wary, but the business might have turned around its fortunes. It's always interesting to track share price performance over the longer term. But to understand Huafon Microfibre (Shanghai) better, we need to consider many other factors. Even so, be aware that Huafon Microfibre (Shanghai) is showing 2 warning signs in our investment analysis , you should know about...

We will like Huafon Microfibre (Shanghai) better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider 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.