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For many, the main point of investing is to generate higher returns than the overall market. But even the best stock picker will only win with some selections. At this point some shareholders may be questioning their investment in China Renewable Energy Investment Limited (HKG:987), since the last five years saw the share price fall 37%. The falls have accelerated recently, with the share price down 15% in the last three months. But this could be related to the weak market, which is down 6.8% in the same period.
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. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
While the share price declined over five years, China Renewable Energy Investment actually managed to increase EPS by an average of 16% per year. So it doesn’t seem like EPS is a great guide to understanding how the market is valuing the stock. Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS. Because of the sharp contrast between the EPS growth rate and the share price growth, we’re inclined to look to other metrics to understand the changing market sentiment around the stock.
We note that the dividend has remained healthy, so that wouldn’t really explain the share price drop. While it’s not completely obvious why the share price is down, a closer look at the company’s history might help explain it.
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of China Renewable Energy Investment’s earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of China Renewable Energy Investment, it has a TSR of -31% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Investors in China Renewable Energy Investment had a tough year, with a total loss of 6.8% (including dividends), against a market gain of about 0.1%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, longer term shareholders are suffering worse, given the loss of 7.2% doled out over the last five years. We’d need to see some sustained improvements in the key metrics before we could muster much enthusiasm. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of China Renewable Energy Investment by clicking this link.
China Renewable Energy Investment is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.