Passive investing in index funds can generate returns that roughly match the overall market. But you can significantly boost your returns by picking above-average stocks. To wit, the Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) share price is 99% higher than it was a year ago, much better than the market return of around 15% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! Zooming out, the stock is actually down 41% in the last three years.

The past week has proven to be lucrative for Lexicon Pharmaceuticals investors, so let's see if fundamentals drove the company's one-year performance.

Lexicon Pharmaceuticals isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually desire strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

Over the last twelve months, Lexicon Pharmaceuticals' revenue grew by 1,255%. That's well above most other pre-profit companies. The solid 99% share price gain goes down pretty well, but it's not necessarily as good as you might expect given the top notch revenue growth. If that's the case, now might be the time to take a close look at Lexicon Pharmaceuticals. Since we evolved from monkeys, we think in linear terms by nature. So if growth goes exponential, opportunity may exist for the enlightened.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Balance sheet strength is crucial.

A Different Perspective

It's good to see that Lexicon Pharmaceuticals has rewarded shareholders with a total shareholder return of 99% in the last twelve months. There's no doubt those recent returns are much better than the TSR loss of 13% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. 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 Lexicon Pharmaceuticals , and understanding them should be part of your investment process.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

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.