China Renewable Energy Investment's (HKG:987) three-year total shareholder returns outpace the underlying earnings growth

China Renewable Energy Investment Limited (HKG:987) shareholders might be concerned after seeing the share price drop 13% in the last quarter. But don't let that distract from the very nice return generated over three years. After all, the share price is up a market-beating 33% in that time.

Although China Renewable Energy Investment has shed HK$70m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

Our analysis indicates that 987 is potentially overvalued!

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

China Renewable Energy Investment was able to grow its EPS at 6.8% per year over three years, sending the share price higher. In comparison, the 10% per year gain in the share price outpaces the EPS growth. This indicates that the market is feeling more optimistic on the stock, after the last few years of progress. It's not unusual to see the market 're-rate' a stock, after a few years of growth.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

This free interactive report on China Renewable Energy Investment's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About The Total Shareholder Return (TSR)?

Investors should note that there's a difference between China Renewable Energy Investment's total shareholder return (TSR) and its share price change, which we've covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. China Renewable Energy Investment's TSR of 48% for the 3 years exceeded its share price return, because it has paid dividends.

A Different Perspective

We regret to report that China Renewable Energy Investment shareholders are down 30% for the year. Unfortunately, that's worse than the broader market decline of 24%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 1.3% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 2 warning signs for China Renewable Energy Investment that you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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