We Think That There Are Some Issues For Guangdong Kingstrong Technology (SZSE:300629) Beyond Its Promising Earnings

Guangdong Kingstrong Technology Co., Ltd.'s (SZSE:300629) healthy profit numbers didn't contain any surprises for investors. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

View our latest analysis for Guangdong Kingstrong Technology

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Guangdong Kingstrong Technology increased the number of shares on issue by 5.4% over the last twelve months by issuing new shares. 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. You can see a chart of Guangdong Kingstrong Technology's EPS by clicking here.

How Is Dilution Impacting Guangdong Kingstrong Technology's Earnings Per Share (EPS)?

As you can see above, Guangdong Kingstrong Technology has been growing its net income over the last few years, with an annualized gain of 167% over three years. In comparison, earnings per share only gained 150% over the same period. And over the last 12 months, the company grew its profit by 8.9%. But in comparison, EPS only increased by 8.8% 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 Guangdong Kingstrong Technology can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

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

Our Take On Guangdong Kingstrong Technology's Profit Performance

Each Guangdong Kingstrong Technology 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 Kingstrong Technology's true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you'd like to know more about Guangdong Kingstrong Technology as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 1 warning sign for Guangdong Kingstrong Technology and we think they deserve your attention.

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