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 Kandi Technologies (NASDAQ:KNDI) 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 Kandi'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 Kandi's key statistics:

KNDI Total Return Price Chart

KNDI Total Return Price data by YCharts

Passing Criteria

Three-Year* Change 

Grade

Revenue growth > 30%

179.3%

Pass

Improving profit margin

(360%)

Fail

Free cash flow growth > Net income growth

223.5% vs. (825%)

Pass

Improving EPS

(721%)

Fail

Stock growth (+ 15%) < EPS growth

288.1% vs. (721%)

Fail

Source: YCharts. * Period begins at end of Q1 2011.

KNDI Return on Equity (TTM) Chart

KNDI Return on Equity (TTM) data by YCharts

Passing Criteria

Three-Year* Change

Grade

Improving return on equity

(376%)

Fail

Declining debt to equity

(57.5%)

Pass

Source: YCharts. * Period begins at end of Q1 2011.

How we got here and where we're going
Kandi has been delicious for investors over the past three years, as share prices have nearly doubled -- however, the company's difficulty sustaining profitability has seriously hurt its score, which is an underwhelming three of seven passing grades here. The company's positive free cash momentum should encourage investors, but it's important to keep an eye on the income statement as well, and this has been moving a long way in the wrong direction in recent quarters. Can Kandi boost its bottom line and win over investors by 2015? Let's dig deeper to find out.

Kandi's shares have given up nearly all the ground gained after a near-double in January, and this massive drop (after a far more massive pop, to be fair) seems tied in no small part to CNBC talking head Jim Cramer's persistent drumbeat of negativity toward the Chinese EV manufacturer.

With such a large part of its float sold short, and with so little serious coverage of its actual business -- whether positive or negative -- Kandi's shares are constantly susceptible to massive moves. These moves have occurred with a gut-churning frequency, as Kandi's shares have oscillated by more than 5% in one direction or another 82 times since the start of 2013. Kandi has only had 72 trading days over the same time frame when it moved less than 1% up or down, making it something of a short-term trader's dream stock in a largely sedate market.

Part of the reason for Kandi's volatility is because no American analyst has yet stepped up to offer an opinion in one direction or the other. The general opacity of many Chinese-based businesses doesn't exactly encourage anyone on Wall Street to stick their neck out, and many analysts still remember with displeasure the wave of fraudulent Chinese shares that collapsed several years ago. What Kandi has reported has been generally very positive, as its top line is growing rapidly, and it has been the beneficiary of several Chinese EV initiatives, including a supply arrangement with the city of Hangzhou and an incentive program that will distribute nearly $10,000 in subsidies to Chinese EV buyers.

However, according to data compiled by Fool writer Leah Niu, Kandi's reports may be somewhat shady -- the firm that helped Kandi go public in the U.S. by reverse merger is currently being prosecuted by the SEC for stock manipulation schemes. With so little trustworthy information available investors should tread lightly around this highly speculative stock.

Putting the pieces together
Today, Kandi Technologies has some 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.

Warren Buffett's worst auto-nightmare (Hint: It's not Tesla)
A major technological shift is happening in the automotive industry. Most people are skeptical about its impact. Warren Buffett isn't one of them. He recently called it a "real threat" to one of his favorite businesses. An executive at Ford called the technology "fantastic." The beauty for investors is that there is an easy way to invest in this megatrend. Click here to access our exclusive report on this stock.

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.