Earnings Troubles May Signal Larger Issues for VT Industrial TechnologyLtd (SZSE:300707) Shareholders

The subdued market reaction suggests that VT Industrial Technology Co.,Ltd's (SZSE:300707) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

Check out our latest analysis for VT Industrial TechnologyLtd

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. VT Industrial TechnologyLtd expanded the number of shares on issue by 12% over the last year. As a result, its net income is now split between 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. You can see a chart of VT Industrial TechnologyLtd's EPS by clicking here.

How Is Dilution Impacting VT Industrial TechnologyLtd's Earnings Per Share (EPS)?

As you can see above, VT Industrial TechnologyLtd has been growing its net income over the last few years, with an annualized gain of 33% over three years. But EPS was only up 13% per year, in the exact same period. Net income was down 5.0% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 20%. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If VT Industrial TechnologyLtd's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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 VT Industrial TechnologyLtd.

Our Take On VT Industrial TechnologyLtd's Profit Performance

VT Industrial TechnologyLtd issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that VT Industrial TechnologyLtd's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 13% per annum growth in EPS for the last three. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example - VT Industrial TechnologyLtd has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of VT Industrial TechnologyLtd'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 with significant insider holdings 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.