Shenzhen Desay Battery Technology's (SZSE:000049) Weak Earnings May Only Reveal A Part Of The Whole Picture

Shenzhen Desay Battery Technology Co., Ltd.'s (SZSE:000049) recent weak earnings report didn't cause a big stock movement. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

See our latest analysis for Shenzhen Desay Battery Technology

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Shenzhen Desay Battery Technology increased the number of shares on issue by 28% over the last twelve months by issuing new shares. 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 Shenzhen Desay Battery Technology's historical EPS growth by clicking on this link.

How Is Dilution Impacting Shenzhen Desay Battery Technology's Earnings Per Share (EPS)?

Unfortunately, Shenzhen Desay Battery Technology's profit is down 16% per year over three years. Even looking at the last year, profit was still down 35%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 36% in the same period. So you can see that the dilution has had a fairly significant impact on shareholders.

In the long term, if Shenzhen Desay Battery Technology's earnings per share can increase, then the share price should too. 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 Shenzhen Desay Battery Technology's Profit Performance

Over the last year Shenzhen Desay Battery Technology issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that Shenzhen Desay Battery Technology's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. 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. While conducting our analysis, we found that Shenzhen Desay Battery Technology has 3 warning signs and it would be unwise to ignore them.

Today we've zoomed in on a single data point to better understand the nature of Shenzhen Desay Battery Technology'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 that insiders are buying 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.