Investors can approximate the average market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Investors in China Renaissance Holdings Limited (HKG:1911) have tasted that bitter downside in the last year, as the share price dropped 27%. That's well bellow the market return of 6.1%. We wouldn't rush to judgement on China Renaissance Holdings because we don't have a long term history to look at. It's down 3.9% in the last seven days.

See our latest analysis for China Renaissance 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 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).

Even though the China Renaissance Holdings share price is down over the year, its EPS actually improved. Of course, the situation might betray previous over-optimism about growth. In fact, we can see extraordinary items impacting earnings in the last twelve months.

It's surprising to see the share price fall so much, despite the improved EPS. So it's easy to justify a look at some other metrics.

China Renaissance Holdings's revenue is actually up 13% over the last year. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for China Renaissance Holdings in this interactive graph of future profit estimates.

A Different Perspective

While China Renaissance Holdings shareholders are down 27% for the year, the market itself is up 6.1%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. The share price decline has continued throughout the most recent three months, down 1.6%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - China Renaissance Holdings has 1 warning sign we think you should be aware of.