The 5.4% return this week takes Renault's (EPA:RNO) shareholders five-year gains to 190%

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But on a lighter note, a good company can see its share price rise well over 100%. Long term Renault SA (EPA:RNO) shareholders would be well aware of this, since the stock is up 177% in five years. It's even up 5.4% in the last week. But this could be related to the buoyant market which is up about 5.9% in a week.

Since the stock has added €616m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

We've discovered 4 warning signs about Renault. View them for free.

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the five years of share price growth, Renault moved from a loss to profitability. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. Indeed, the Renault share price has gained 92% in three years. In the same period, EPS is up 17% per year. This EPS growth is lower than the 24% average annual increase in the share price over three years. So it's fair to assume the market has a higher opinion of the business than it did three years ago.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

It might be well worthwhile taking a look at our free report on Renault'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. We note that for Renault the TSR over the last 5 years was 190%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Although it hurts that Renault returned a loss of 5.6% in the last twelve months, the broader market was actually worse, returning a loss of 6.4%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 24% for each year. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. It's always interesting to track share price performance over the longer term. But to understand Renault better, we need to consider many other factors. Take risks, for example - Renault has 4 warning signs (and 1 which can't be ignored) we think you should know about.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.