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 Shanghai DragonNet Technology Co.,Ltd. (SZSE:300245), which is up 37%, over three years, soundly beating the market decline of 13% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 28%.

Since the stock has added CN¥480m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Given that Shanghai DragonNet TechnologyLtd 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 would hope for good top-line growth to make up for the lack of earnings.

In the last 3 years Shanghai DragonNet TechnologyLtd saw its revenue shrink by 9.0% per year. The revenue growth might be lacking but the share price has gained 11% each year in that time. If the company is cutting costs profitability could be on the horizon, but the revenue decline is a prima facie concern.

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

It's good to see that Shanghai DragonNet TechnologyLtd has rewarded shareholders with a total shareholder return of 28% in the last twelve months. That gain is better than the annual TSR over five years, which is 6%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Shanghai DragonNet TechnologyLtd better, we need to consider many other factors. For example, we've discovered 2 warning signs for Shanghai DragonNet TechnologyLtd that you should be aware of before investing here.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.