Zhejiang Weixing Industrial Development (SZSE:002003) Strong Profits May Be Masking Some Underlying Issues

Zhejiang Weixing Industrial Development Co., Ltd. (SZSE:002003) just released a solid earnings report, and the stock displayed some strength. Despite this, our analysis suggests that there are some factors weakening the foundations of those good profit numbers.

View our latest analysis for Zhejiang Weixing Industrial Development

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Zhejiang Weixing Industrial Development issued 13% more new shares 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. You can see a chart of Zhejiang Weixing Industrial Development's EPS by clicking here.

A Look At The Impact Of Zhejiang Weixing Industrial Development's Dilution On Its Earnings Per Share (EPS)

Zhejiang Weixing Industrial Development has improved its profit over the last three years, with an annualized gain of 37% in that time. And over the last 12 months, the company grew its profit by 11%. On the other hand, earnings per share are only up 9.4% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Zhejiang Weixing Industrial Development 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 Zhejiang Weixing Industrial Development's Profit Performance

Zhejiang Weixing Industrial Development shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that Zhejiang Weixing Industrial Development's true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 32% 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. If you want to do dive deeper into Zhejiang Weixing Industrial Development, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 2 warning signs with Zhejiang Weixing Industrial Development, 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 Zhejiang Weixing Industrial Development'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.