Positive earnings growth hasn't been enough to get China Resources Beer (Holdings) (HKG:291) shareholders a favorable return over the last three years

While not a mind-blowing move, it is good to see that the China Resources Beer (Holdings) Company Limited (HKG:291) share price has gained 11% in the last three months. But that is small recompense for the exasperating returns over three years. In that time, the share price dropped 56%. Some might say the recent bounce is to be expected after such a bad drop. While many would remain nervous, there could be further gains if the business can put its best foot forward.

On a more encouraging note the company has added HK$3.2b to its market cap in just the last 7 days, so let's see if we can determine what's driven the three-year loss for shareholders.

Check out our latest analysis for China Resources Beer (Holdings)

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

Although the share price is down over three years, China Resources Beer (Holdings) actually managed to grow EPS by 6.6% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

Revenue is actually up 6.2% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating China Resources Beer (Holdings) further; while we may be missing something on this analysis, there might also be an opportunity.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

China Resources Beer (Holdings) is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling China Resources Beer (Holdings) stock, you should check out this free report showing analyst consensus estimates for future profits.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, China Resources Beer (Holdings)'s TSR for the last 3 years was -54%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

China Resources Beer (Holdings) shareholders are down 19% for the year (even including dividends), but the market itself is up 18%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 6% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. Before deciding if you like the current share price, check how China Resources Beer (Holdings) scores on these 3 valuation metrics.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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

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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.