Additional Considerations Required While Assessing Shenzhen Kaizhong Precision Technology's (SZSE:002823) Strong Earnings

Shenzhen Kaizhong Precision Technology Co., Ltd.'s (SZSE:002823) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

Check out our latest analysis for Shenzhen Kaizhong Precision Technology

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Shenzhen Kaizhong Precision Technology issued 14% more new shares over the last year. 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. You can see a chart of Shenzhen Kaizhong Precision Technology's EPS by clicking here.

How Is Dilution Impacting Shenzhen Kaizhong Precision Technology's Earnings Per Share (EPS)?

We don't have any data on the company's profits from three years ago. On the bright side, in the last twelve months it grew profit by 2,317%. On the other hand, earnings per share are only up 2,091% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Shenzhen Kaizhong Precision Technology 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 the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shenzhen Kaizhong Precision Technology.

Our Take On Shenzhen Kaizhong Precision Technology's Profit Performance

Shenzhen Kaizhong Precision Technology shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Shenzhen Kaizhong Precision Technology's statutory profits are better than its underlying earnings power. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over 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. If you want to do dive deeper into Shenzhen Kaizhong Precision Technology, you'd also look into what risks it is currently facing. To that end, you should learn about the 4 warning signs we've spotted with Shenzhen Kaizhong Precision Technology (including 3 which are significant).

Today we've zoomed in on a single data point to better understand the nature of Shenzhen Kaizhong Precision Technology'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 with high insider ownership.

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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.