Lucky Harvest's (SZSE:002965) Earnings Are Weaker Than They Seem

Lucky Harvest Co., Ltd. (SZSE:002965) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

Check out our latest analysis for Lucky Harvest

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Lucky Harvest expanded the number of shares on issue by 15% 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. Check out Lucky Harvest's historical EPS growth by clicking on this link.

A Look At The Impact Of Lucky Harvest's Dilution On Its Earnings Per Share (EPS)

As you can see above, Lucky Harvest has been growing its net income over the last few years, with an annualized gain of 152% over three years. But EPS was only up 115% per year, in the exact same period. And at a glance the 59% gain in profit over the last year impresses. On the other hand, earnings per share are only up 49% in that time. 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 it will certainly be a positive for shareholders if Lucky Harvest can grow EPS persistently. 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 Lucky Harvest's Profit Performance

Lucky Harvest 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 Lucky Harvest's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. If you'd like to know more about Lucky Harvest as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 2 warning signs for Lucky Harvest and we think they deserve your attention.

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