Jiangsu Yangdian Science & Technology's (SZSE:301012) Shareholders Have More To Worry About Than Only Soft Earnings

Jiangsu Yangdian Science & Technology Co. Ltd.'s (SZSE:301012) stock showed strength, with investors undeterred by its weak earnings report. We think that shareholders might be missing some concerning factors that our analysis found.

See our latest analysis for Jiangsu Yangdian Science & Technology

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Jiangsu Yangdian Science & Technology expanded the number of shares on issue by 20% over the last year. As a result, its net income is now split between a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a chart of Jiangsu Yangdian Science & Technology's EPS by clicking here.

A Look At The Impact Of Jiangsu Yangdian Science & Technology's Dilution On Its Earnings Per Share (EPS)

Unfortunately, Jiangsu Yangdian Science & Technology's profit is down 63% per year over three years. And even focusing only on the last twelve months, we see profit is down 55%. Sadly, earnings per share fell further, down a full 61% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If Jiangsu Yangdian Science & Technology's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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 Jiangsu Yangdian Science & Technology.

How Do Unusual Items Influence Profit?

Finally, we should also consider the fact that unusual items boosted Jiangsu Yangdian Science & Technology's net profit by CN¥1.4m over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If Jiangsu Yangdian Science & Technology doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Jiangsu Yangdian Science & Technology's Profit Performance

To sum it all up, Jiangsu Yangdian Science & Technology got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. For the reasons mentioned above, we think that a perfunctory glance at Jiangsu Yangdian Science & Technology's statutory profits might make it look better than it really is on an underlying level. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Be aware that Jiangsu Yangdian Science & Technology is showing 4 warning signs in our investment analysis and 2 of those are significant...

Our examination of Jiangsu Yangdian Science & Technology has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.