I stared at this Cholamandalam story for a while because it's such a perfect example of something I keep running into with individual stocks. The business is growing. The numbers look good on the surface. And the stock still drops because the stuff happening underneath is a little messier than investors want.

So here's what went down. Cholamandalam Investment and Finance posted their Q1 results and disbursements jumped 22 percent year-over-year. Assets under management grew 33 percent. Those are big, real numbers. If you just looked at those two lines you'd think, great, buy more.

But the stock fell. Because asset quality worsened.

That part matters way more than the growth number.

I'll explain this the way I did to a friend who texted me about it. Asset quality basically means: are the people who borrowed money actually paying it back? When a lender says asset quality worsened, more borrowers are falling behind or defaulting. The loans are going bad at a faster clip. And for a financial company, that's the crack in the foundation. You can grow your loan book all you want but if a bigger chunk of it isn't getting repaid, your growth is built on quicksand.

Disbursements rising 22 percent and AUM growing 33 percent tells you the company is lending aggressively. That's fine when the economy is strong and people are paying. But when asset quality heads the wrong direction at the same time you're lending more, you have to ask whether the growth is coming from taking on riskier borrowers to keep the numbers up.

I don't own Cholamandalam. I don't own any Indian NBFCs (non-banking financial companies, for anyone not familiar). But I watch stories like this because the pattern is universal. Warren and I were arguing about something similar last week. He'd say the stock drop is an overreaction and that a single quarter of worsening asset quality in a growing loan book is noise. I'd say the market is pricing in the possibility that it's not noise, it's a trend, and by the time you confirm it's a trend you've already lost 30 percent.

We're probably both right. That's usually how these things go.

The thing I keep coming back to is that growth and quality tell you different stories. Growth says the top line is getting bigger. Quality says the foundation underneath that top line is solid. When they point in the same direction, amazing. When they diverge, you pay attention to the quality number first. Every time. Growth can mask problems for a while, but deteriorating asset quality catches up fast.

If I were looking at this as a potential investment (I'm not), I'd want to see two more quarters of data before making a call. One bad quarter could be a blip. Two is a pattern. Three is who you are. I'd also want to dig into which segments of their loan portfolio are deteriorating, because the aggregate number hides the specifics and the specifics are where the real risk lives.

For now I'm just watching from the sidelines. Taking notes. Learning the pattern so when I see it in something I actually own, I recognize it faster.