Gansu Engineering Consulting Group's (SZSE:000779) Shareholders Have More To Worry About Than Only Soft Earnings

Gansu Engineering Consulting Group Co., Ltd.'s (SZSE:000779) stock showed strength, with investors undeterred by its weak earnings report. Sometimes, shareholders are willing to ignore soft numbers with the hope that they will improve, but our analysis suggests this is unlikely for Gansu Engineering Consulting Group.

Check out our latest analysis for Gansu Engineering Consulting Group

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Gansu Engineering Consulting Group issued 22% more new shares over the last year. That means its earnings are split among a greater number of shares. 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. You can see a chart of Gansu Engineering Consulting Group's EPS by clicking here.

A Look At The Impact Of Gansu Engineering Consulting Group's Dilution On Its Earnings Per Share (EPS)

Unfortunately, Gansu Engineering Consulting Group's profit is down 20% per year over three years. And even focusing only on the last twelve months, we see profit is down 3.8%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 20% in the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If Gansu Engineering Consulting Group'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.

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 Gansu Engineering Consulting Group's Profit Performance

Gansu Engineering Consulting Group issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Gansu Engineering Consulting Group's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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. 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 Gansu Engineering Consulting Group, and understanding them should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Gansu Engineering Consulting Group'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 with significant insider holdings 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.