We Think That There Are More Issues For Yongjin Technology Group (SHSE:603995) Than Just Sluggish Earnings

Despite Yongjin Technology Group Co., Ltd.'s (SHSE:603995) recent earnings report having lackluster headline numbers, the market responded positively. We think that shareholders might be missing some concerning factors that our analysis found.

Check out our latest analysis for Yongjin Technology Group

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Yongjin Technology Group increased the number of shares on issue by 8.5% over the last twelve months by issuing new shares. That means its earnings are split among 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 Yongjin Technology Group's EPS by clicking here.

How Is Dilution Impacting Yongjin Technology Group's Earnings Per Share (EPS)?

Yongjin Technology Group has improved its profit over the last three years, with an annualized gain of 9.3% in that time. In contrast, earnings per share were actually down by 0.9% per year, in the exact same period. Net profit actually dropped by 6.9% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 15%. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if Yongjin Technology Group's earnings per share can increase, then the share price should too. 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 Yongjin Technology Group's Profit Performance

Yongjin Technology Group issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that Yongjin Technology Group's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we've identified 2 warning signs with Yongjin Technology 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 Yongjin Technology 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 that insiders are buying 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.