Dongfeng Electronic Technology Co.,Ltd.'s (SHSE:600081) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that shareholders have noticed something concerning in the numbers.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Dongfeng Electronic TechnologyLtd expanded the number of shares on issue by 23% over the last year. That means its earnings are split among a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. Check out Dongfeng Electronic TechnologyLtd's historical EPS growth by clicking on this link.

A Look At The Impact Of Dongfeng Electronic TechnologyLtd's Dilution On Its Earnings Per Share (EPS)

Unfortunately, Dongfeng Electronic TechnologyLtd's profit is down 41% per year over three years. The good news is that profit was up 93% in the last twelve months. On the other hand, earnings per share are only up 71% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Dongfeng Electronic TechnologyLtd shareholders will want to see that EPS figure continue to increase. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Dongfeng Electronic TechnologyLtd.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Dongfeng Electronic TechnologyLtd's profit was boosted by unusual items worth CN¥22m in the last twelve months. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. If Dongfeng Electronic TechnologyLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Dongfeng Electronic TechnologyLtd's Profit Performance

To sum it all up, Dongfeng Electronic TechnologyLtd got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. Considering all this we'd argue Dongfeng Electronic TechnologyLtd's profits probably give an overly generous impression of its sustainable level of profitability. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. While conducting our analysis, we found that Dongfeng Electronic TechnologyLtd has 2 warning signs and it would be unwise to ignore these bad boys.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.