Fujian Longking's (SHSE:600388) Shareholders May Want To Dig Deeper Than Statutory Profit

The recent earnings posted by Fujian Longking Co., Ltd. (SHSE:600388) were solid, but the stock didn't move as much as we expected. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

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In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Fujian Longking increased the number of shares on issue by 17% 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. Check out Fujian Longking's historical EPS growth by clicking on this link.

How Is Dilution Impacting Fujian Longking's Earnings Per Share (EPS)?

Fujian Longking's net profit dropped by 3.5% per year over the last three years. On the bright side, in the last twelve months it grew profit by 63%. But EPS was less impressive, up only 64% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So Fujian Longking 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.

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 Fujian Longking's Profit Performance

Each Fujian Longking share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Fujian Longking's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 64% EPS growth in the last year. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. In terms of investment risks, we've identified 3 warning signs with Fujian Longking, and understanding them should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Fujian Longking's 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. 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.