Additional Considerations Required While Assessing Hangzhou Todaytec Digital's (SZSE:300743) Strong Earnings

Hangzhou Todaytec Digital Co., Ltd's (SZSE:300743) 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.

See our latest analysis for Hangzhou Todaytec Digital

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Hangzhou Todaytec Digital increased the number of shares on issue by 8.3% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. 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 Hangzhou Todaytec Digital's historical EPS growth by clicking on this link.

A Look At The Impact Of Hangzhou Todaytec Digital's Dilution On Its Earnings Per Share (EPS)

Hangzhou Todaytec Digital has improved its profit over the last three years, with an annualized gain of 232% in that time. And the 60% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 48% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Hangzhou Todaytec Digital can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 Hangzhou Todaytec Digital.

Our Take On Hangzhou Todaytec Digital's Profit Performance

Each Hangzhou Todaytec Digital 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 Hangzhou Todaytec Digital's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. 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 discovered 2 warning signs that you should run your eye over to get a better picture of Hangzhou Todaytec Digital.

This note has only looked at a single factor that sheds light on the nature of Hangzhou Todaytec Digital'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 with significant insider holdings 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.