While shareholders of Nanjing Red SunLtd (SZSE:000525) are in the black over 3 years, those who bought a week ago aren't so fortunate

By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. For example, Nanjing Red Sun Co.,Ltd. (SZSE:000525) shareholders have seen the share price rise 35% over three years, well in excess of the market decline (18%, not including dividends).

Although Nanjing Red SunLtd has shed CN¥378m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

View our latest analysis for Nanjing Red SunLtd

Because Nanjing Red SunLtd made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Shareholders of unprofitable companies usually desire strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

Nanjing Red SunLtd actually saw its revenue drop by 11% per year over three years. 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.

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

This free interactive report on Nanjing Red SunLtd's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

While the broader market gained around 3.3% in the last year, Nanjing Red SunLtd shareholders lost 3.9%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, longer term shareholders are suffering worse, given the loss of 4% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Nanjing Red SunLtd , and understanding them should be part of your investment process.

But note: Nanjing Red SunLtd may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.