We Think That There Are Issues Underlying Feilong Auto Components' (SZSE:002536) Earnings

Feilong Auto Components Co., Ltd. (SZSE:002536) announced strong profits, but the stock was stagnant. 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. As a result, its net income is now split between a greater number of shares. 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)?

As you can see above, Feilong Auto Components has been growing its net income over the last few years, with an annualized gain of 42% over three years. And at a glance the 21% gain in profit over the last year impresses. On the other hand, earnings per share are only up 37% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Feilong Auto Components can grow EPS persistently. 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. Therefore, it seems possible to us that Feilong Auto Components' true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 33% per annum growth in EPS for the last three. 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. If you'd like to know more about Feilong Auto Components as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 2 warning signs for Feilong Auto Components and you'll want to know about them.

This note has only looked at a single factor that sheds light on the nature of Feilong Auto Components' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 with high insider ownership.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.