Weak Statutory Earnings May Not Tell The Whole Story For JiangSu Changling HydraulicLtd (SHSE:605389)

JiangSu Changling Hydraulic Co.,Ltd's (SHSE:605389) stock showed strength, with investors undeterred by its weak earnings report. We think that shareholders might be missing some concerning factors that our analysis found.

View our latest analysis for JiangSu Changling HydraulicLtd

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, JiangSu Changling HydraulicLtd increased the number of shares on issue by 5.7% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a chart of JiangSu Changling HydraulicLtd's EPS by clicking here.

How Is Dilution Impacting JiangSu Changling HydraulicLtd's Earnings Per Share (EPS)?

JiangSu Changling HydraulicLtd's net profit dropped by 59% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 2.5%. Sadly, earnings per share fell further, down a full 3.4% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if JiangSu Changling HydraulicLtd's earnings per share can increase, then the share price should too. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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 JiangSu Changling HydraulicLtd.

Our Take On JiangSu Changling HydraulicLtd's Profit Performance

JiangSu Changling HydraulicLtd issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that JiangSu Changling HydraulicLtd's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Case in point: We've spotted 3 warning signs for JiangSu Changling HydraulicLtd you should be mindful of and 1 of these bad boys is a bit concerning.

This note has only looked at a single factor that sheds light on the nature of JiangSu Changling HydraulicLtd's 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 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.