Feilong Auto Components (SZSE:002536) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

Despite posting some strong earnings, the market for Feilong Auto Components Co., Ltd.'s (SZSE:002536) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

Check out our latest analysis for Feilong Auto Components

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Feilong Auto Components issued 15% more new shares over the last year. 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. Check out Feilong Auto Components' historical EPS growth by clicking on this link.

How Is Dilution Impacting Feilong Auto Components' Earnings Per Share (EPS)?

Feilong Auto Components has improved its profit over the last three years, with an annualized gain of 80% in that time. And the 118% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 133% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So Feilong Auto Components 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 the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Feilong Auto Components' Profit Performance

Feilong Auto Components shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Feilong Auto Components' statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. In terms of investment risks, we've identified 2 warning signs with Feilong Auto Components, and understanding them should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Feilong Auto Components' profit. 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.