Guangdong KinLong Hardware ProductsLtd's (SZSE:002791) Profits Appear To Have Quality Issues

The market for Guangdong KinLong Hardware Products Co.,Ltd.'s (SZSE:002791) stock was strong after it released a healthy earnings report last week. However, we think that shareholders should be cautious as we found some worrying factors underlying the profit.

Check out our latest analysis for Guangdong KinLong Hardware ProductsLtd

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Guangdong KinLong Hardware ProductsLtd issued 10% more new shares over the last year. That means its earnings are split among 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. Check out Guangdong KinLong Hardware ProductsLtd's historical EPS growth by clicking on this link.

How Is Dilution Impacting Guangdong KinLong Hardware ProductsLtd's Earnings Per Share (EPS)?

Unfortunately, Guangdong KinLong Hardware ProductsLtd's profit is down 67% per year over three years. On the bright side, in the last twelve months it grew profit by 93%. On the other hand, earnings per share are only up 126% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Guangdong KinLong Hardware ProductsLtd can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 KinLong Hardware ProductsLtd's Profit Performance

Each Guangdong KinLong Hardware ProductsLtd share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Guangdong KinLong Hardware ProductsLtd's true underlying earnings power is actually less than its statutory profit. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. While conducting our analysis, we found that Guangdong KinLong Hardware ProductsLtd has 1 warning sign and it would be unwise to ignore this.

Today we've zoomed in on a single data point to better understand the nature of Guangdong KinLong Hardware ProductsLtd'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.