We Think You Should Be Aware Of Some Concerning Factors In Wuxi Smart Auto-Control Engineering's (SZSE:002877) Earnings

Wuxi Smart Auto-Control Engineering Co., Ltd.'s (SZSE:002877) robust recent earnings didn't do much to move the stock. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

See our latest analysis for Wuxi Smart Auto-Control Engineering

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Wuxi Smart Auto-Control Engineering increased the number of shares on issue by 6.3% 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 Wuxi Smart Auto-Control Engineering's historical EPS growth by clicking on this link.

A Look At The Impact Of Wuxi Smart Auto-Control Engineering's Dilution On Its Earnings Per Share (EPS)

As you can see above, Wuxi Smart Auto-Control Engineering has been growing its net income over the last few years, with an annualized gain of 83% over three years. And the 21% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 18% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Wuxi Smart Auto-Control Engineering 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Wuxi Smart Auto-Control Engineering.

Our Take On Wuxi Smart Auto-Control Engineering's Profit Performance

Each Wuxi Smart Auto-Control Engineering share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Wuxi Smart Auto-Control Engineering's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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. Be aware that Wuxi Smart Auto-Control Engineering is showing 3 warning signs in our investment analysis and 1 of those is a bit unpleasant...

This note has only looked at a single factor that sheds light on the nature of Wuxi Smart Auto-Control Engineering'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. 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.