Yingkou Jinchen Machinery Co., Ltd. (SHSE:603396) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.
One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Yingkou Jinchen Machinery increased the number of shares on issue by 19% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. You can see a chart of Yingkou Jinchen Machinery's EPS by clicking here.
How Is Dilution Impacting Yingkou Jinchen Machinery's Earnings Per Share (EPS)?
You can see above that Yingkou Jinchen Machinery's profit is about the same as it was three years back. Meanwhile EPS has dropped 11% per year over the same time frame. The 53% increase in profit would have impressed many. Then again, EPS was only up 50% over that 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 Yingkou Jinchen Machinery shareholders will want to see that EPS figure continue to increase. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 Yingkou Jinchen Machinery.
Our Take On Yingkou Jinchen Machinery's Profit Performance
Each Yingkou Jinchen Machinery share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Yingkou Jinchen Machinery's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 50% EPS growth in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example - Yingkou Jinchen Machinery has 1 warning sign we think you should be aware of.
This note has only looked at a single factor that sheds light on the nature of Yingkou Jinchen Machinery's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.
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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.