Shandong Link Science and TechnologyLtd (SZSE:001207) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

Shandong Link Science and Technology Co.,Ltd. (SZSE:001207) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

See our latest analysis for Shandong Link Science and TechnologyLtd

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Shandong Link Science and TechnologyLtd issued 10% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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. Check out Shandong Link Science and TechnologyLtd's historical EPS growth by clicking on this link.

How Is Dilution Impacting Shandong Link Science and TechnologyLtd's Earnings Per Share (EPS)?

As you can see above, Shandong Link Science and TechnologyLtd has been growing its net income over the last few years, with an annualized gain of 42% over three years. In comparison, earnings per share only gained 1.4% over the same period. And the 51% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 44% over the same period. 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 Shandong Link Science and TechnologyLtd 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shandong Link Science and TechnologyLtd.

Our Take On Shandong Link Science and TechnologyLtd's Profit Performance

Each Shandong Link Science and TechnologyLtd share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Shandong Link Science and TechnologyLtd's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 44% 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 2 warning signs for Shandong Link Science and TechnologyLtd you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Shandong Link Science and TechnologyLtd's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.