Why Runjian's (SZSE:002929) Shaky Earnings Are Just The Beginning Of Its Problems

The market wasn't impressed with the soft earnings from Runjian Co., Ltd. (SZSE:002929) recently. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

Check out our latest analysis for Runjian

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Runjian expanded the number of shares on issue by 19% over the last year. That means its earnings are split among 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 Runjian's historical EPS growth by clicking on this link.

How Is Dilution Impacting Runjian's Earnings Per Share (EPS)?

As you can see above, Runjian has been growing its net income over the last few years, with an annualized gain of 60% over three years. In comparison, earnings per share only gained 37% over the same period. Net profit actually dropped by 7.6% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 16%. Therefore, the dilution is having a noteworthy influence on shareholder returns.

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

Runjian issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that Runjian's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 37% 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. 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. In terms of investment risks, we've identified 2 warning signs with Runjian, and understanding these should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Runjian'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. 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.