By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. Just take a look at Shenzhen Fenda Technology Co., Ltd. (SZSE:002681), which is up 74%, over three years, soundly beating the market decline of 21% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 21% in the last year.

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

We don't think that Shenzhen Fenda Technology'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. It would be hard to believe in a more profitable future without growing revenues.

In the last 3 years Shenzhen Fenda Technology saw its revenue shrink by 15% per year. Despite the lack of revenue growth, the stock has returned 20%, compound, over three years. If the company is cutting costs profitability could be on the horizon, but the revenue decline is a prima facie concern.

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

Take a more thorough look at Shenzhen Fenda Technology's financial health with this free report on its balance sheet.

A Different Perspective

It's good to see that Shenzhen Fenda Technology has rewarded shareholders with a total shareholder return of 21% in the last twelve months. That gain is better than the annual TSR over five years, which is 5%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Shenzhen Fenda Technology better, we need to consider many other factors. Take risks, for example - Shenzhen Fenda Technology has 3 warning signs we think you should be aware of.

We will like Shenzhen Fenda Technology 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.