If you want to compound wealth in the stock market, you can do so by buying an index fund. But you can significantly boost your returns by picking above-average stocks. For example, the Pony Testing Co., Ltd. (SZSE:300887) share price is up 12% in the last 1 year, clearly besting the market decline of around 8.9% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! Pony Testing hasn't been listed for long, so it's still not clear if it is a long term winner.

While the stock has fallen 5.4% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

See our latest analysis for Pony Testing

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the last year Pony Testing grew its earnings per share (EPS) by 58%. This EPS growth is significantly higher than the 12% increase in the share price. So it seems like the market has cooled on Pony Testing, despite the growth. Interesting.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

We know that Pony Testing has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Pony Testing will grow revenue in the future.

A Different Perspective

Pony Testing shareholders should be happy with the total gain of 13% over the last twelve months, including dividends. A substantial portion of that gain has come in the last three months, with the stock up 12% in that time. This suggests the company is continuing to win over new investors. 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 3 warning signs with Pony Testing (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.

Of course Pony Testing 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 CN 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.