Stock Analysis

Investors Shouldn't Be Too Comfortable With MCLON JEWELLERYLtd's (SZSE:300945) Earnings

SZSE:300945
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MCLON JEWELLERY Co.,Ltd.'s (SZSE:300945) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

View our latest analysis for MCLON JEWELLERYLtd

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SZSE:300945 Earnings and Revenue History May 3rd 2024

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, MCLON JEWELLERYLtd increased the number of shares on issue by 28% 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 MCLON JEWELLERYLtd's EPS by clicking here.

How Is Dilution Impacting MCLON JEWELLERYLtd's Earnings Per Share (EPS)?

As you can see above, MCLON JEWELLERYLtd has been growing its net income over the last few years, with an annualized gain of 6.2% over three years. In contrast, earnings per share were actually down by 28% per year, in the exact same period. And at a glance the 42% gain in profit over the last year impresses. But in comparison, EPS only increased by 17% over the same period. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So MCLON JEWELLERYLtd shareholders will want to see that EPS figure continue to increase. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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.

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 MCLON JEWELLERYLtd's Profit Performance

Each MCLON JEWELLERYLtd share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that MCLON JEWELLERYLtd's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 17% EPS growth 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. For example, we've found that MCLON JEWELLERYLtd has 3 warning signs (1 is potentially serious!) that deserve your attention before going any further with your analysis.

This note has only looked at a single factor that sheds light on the nature of MCLON JEWELLERYLtd'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.