Jinzi HamLtd's (SZSE:002515) Sluggish Earnings Might Be Just The Beginning Of Its Problems

Following the release of a lackluster earnings report from Jinzi Ham Co.,Ltd. (SZSE:002515) the stock price made a strong positive move. We did some analysis and found some positive factors that investors might be paying attention to rather than profit.

See our latest analysis for Jinzi HamLtd

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Jinzi HamLtd issued 24% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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. Check out Jinzi HamLtd's historical EPS growth by clicking on this link.

How Is Dilution Impacting Jinzi HamLtd's Earnings Per Share (EPS)?

Unfortunately, Jinzi HamLtd's profit is down 39% per year over three years. Even looking at the last year, profit was still down 10%. Sadly, earnings per share fell further, down a full 16% in that time. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

If Jinzi HamLtd'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 Jinzi HamLtd.

The Impact Of Unusual Items On Profit

On top of the dilution, we should also consider the CN¥2.6m impact of unusual items in the last year, which had the effect of suppressing profit. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Jinzi HamLtd to produce a higher profit next year, all else being equal.

Our Take On Jinzi HamLtd's Profit Performance

To sum it all up, Jinzi HamLtd took a hit from unusual items which pushed its profit down; without that, it would have made more money. But unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Based on these factors, we think it's very unlikely that Jinzi HamLtd's statutory profits make it seem much weaker than it is. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. At Simply Wall St, we found 1 warning sign for Jinzi HamLtd and we think they deserve your attention.

Our examination of Jinzi HamLtd has focussed on certain factors that can make its earnings look better than they are. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.