Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Aluminum Corp of China (NYSE:ACH), or Chinalco, fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Chinalco's story, and we'll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at Chinalco's key statistics:

ACH Total Return Price Chart

ACH Total Return Price data by YCharts

Passing Criteria

3-Year* Change

Grade

Revenue growth > 30%

59%

Pass

Improving profit margin

(544.8%)

Fail

Free cash flow growth > Net income growth

(2,375.1%) vs. (1,033.8%)

Fail

Improving EPS

(1,001.3%)

Fail

Stock growth (+ 15%) < EPS growth

(51%) vs. (1,001.3%)

Fail

Source: YCharts. * Period begins at end of Q2 2010.

ACH Return on Equity Chart

ACH Return on Equity data by YCharts

Passing Criteria

3-Year* Change

Grade

Improving return on equity

(968.1%)

Fail

Declining debt to equity

117.2%

Fail

Source: YCharts. * Period begins at end of Q2 2010.

How we got here and where we're going
Chinalco has been hit by the same headwinds plaguing many of its peers in the metals industry, and as such, the aluminum producer mustered only one out of seven possible passing grades -- its erratic dividend, last paid in 2011, would make this one out of nine if we included free cash flow payout ratios and dividend growth as criteria as well. Despite promising revenue growth over the past three years, Chinalco's profit margins have collapsed due to rising expenses and oversupply in the aluminum market. As a result, Chinalco's stock has underperformed over the past couple of years as investors stick to the sidelines of a weak industry. Will Chinalco be able to move past these weaknesses and rebound, or is this leading global aluminum company going to be tarnished for some time? Let's dig a little deeper to see what the future may hold.

Over the past few years, a number of aluminum producers have been forced to operate at heavy losses due to a combination of increased costs of production, excessive supply, and weakening demand in the worldwide aluminum market. As a result, Chinese aluminum producers, which comprise about 44% of global production, have been plagued by declining spot prices that they've been unable to overcome. Fool contributor Matthew Frankel notes that the aluminum producers have started refocusing on their most efficient operations and have made production cuts to maintain long-term profitability. Quite recently, Chinalco suspended a $1.6 billion Malaysian aluminum smelter project, which would have added 370,000 tons per year of capacity.

According to Bloomberg, global aluminum consumption is expected to grow by 6% annually over the next several years. However, worldwide aluminum production will decline by 3.2 million tons by the end of next year, which might improve aluminum prices by around 13%. Fool contributor Matthew Frankel notes that Chinalco has announced that it will slash its production levels by 9% in order to help boost aluminum prices. However, Fool contributor Dan Carroll points out that the Chinese government has been aggressively promoting increased domestic aluminum consumption, and China has also been encouraging domestic aluminum producers to expand their footprints in global markets, which might pose a challenge to other major international aluminum companies -- continuing turmoil in the aluminum industry has already forced Chinalco peer Rio Tinto (NYSE:RIO) to absorb a massive $14 billion writedown of its coal and aluminum assets.

Fool contributor Dan Caplinger notes that aluminum producers may bounce back if they can control their production capacity, and that total industry revenue is expected to reach $160 billion by 2017. But Chinalco isn't standing pat on its aluminum business -- the company has plans to purchase a Peruvian copper mine owned by Glencore Xstrata in a deal worth more than $5 billion. Chinalco also made a major $14.05 billion investmentĀ in Rio Tinto last year, which was the largest Chinese acquisition ever made. These two purchases mark a pivot toward diversified mining operations, which may help smooth out the erratic quality of aluminum-based earnings.

Putting the pieces together
Today, Aluminum Corp of China has few of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

Fool contributor Alex Planes has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.