When we invest, we're generally looking for stocks that outperform the market average. Buying under-rated businesses is one path to excess returns. For example, long term Yimikang Tech.Group Co., Ltd. (SZSE:300249) shareholders have enjoyed a 42% share price rise over the last half decade, well in excess of the market return of around 15% (not including dividends).

While the stock has fallen 9.4% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

Yimikang Tech.Group isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually desire strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

In the last 5 years Yimikang Tech.Group saw its revenue shrink by 9.4% per year. Even though revenue hasn't increased, the stock actually gained 7%, per year, during the same period. To us that suggests that there probably 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 company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

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

Investors in Yimikang Tech.Group had a tough year, with a total loss of 11%, against a market gain of about 7.9%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 7%, 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Yimikang Tech.Group (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

Of course Yimikang Tech.Group may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.