Guangdong Hongtu Technology (holdings)Ltd's (SZSE:002101) Sluggish Earnings Might Be Just The Beginning Of Its Problems

A lackluster earnings announcement from Guangdong Hongtu Technology (holdings) Co.,Ltd. (SZSE:002101) last week didn't sink the stock price. 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 Guangdong Hongtu Technology (holdings)Ltd

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Guangdong Hongtu Technology (holdings)Ltd increased the number of shares on issue by 26% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. 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. Check out Guangdong Hongtu Technology (holdings)Ltd's historical EPS growth by clicking on this link.

How Is Dilution Impacting Guangdong Hongtu Technology (holdings)Ltd's Earnings Per Share (EPS)?

As you can see above, Guangdong Hongtu Technology (holdings)Ltd has been growing its net income over the last few years, with an annualized gain of 171% over three years. In comparison, earnings per share only gained 155% over the same period. Net profit actually dropped by 9.2% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 16%. So you can see that the dilution has had a fairly significant impact on shareholders.

If Guangdong Hongtu Technology (holdings)Ltd's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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 Guangdong Hongtu Technology (holdings)Ltd's Profit Performance

Over the last year Guangdong Hongtu Technology (holdings)Ltd issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that Guangdong Hongtu Technology (holdings)Ltd's true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Guangdong Hongtu Technology (holdings)Ltd.

Today we've zoomed in on a single data point to better understand the nature of Guangdong Hongtu Technology (holdings)Ltd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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.