Why Hubei Fuxing Science and TechnologyLtd's (SZSE:000926) Shaky Earnings Are Just The Beginning Of Its Problems

Hubei Fuxing Science and Technology Co.,Ltd's (SZSE:000926) recent weak earnings report didn't cause a big stock movement. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

Check out our latest analysis for Hubei Fuxing Science and TechnologyLtd

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Hubei Fuxing Science and TechnologyLtd issued 24% more new shares over the last year. As a result, its net income is now split between 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. Check out Hubei Fuxing Science and TechnologyLtd's historical EPS growth by clicking on this link.

A Look At The Impact Of Hubei Fuxing Science and TechnologyLtd's Dilution On Its Earnings Per Share (EPS)

Unfortunately, Hubei Fuxing Science and TechnologyLtd's profit is down 84% per year over three years. And even focusing only on the last twelve months, we see profit is down 70%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 68% in the same period. So you can see that the dilution has had a fairly significant impact on shareholders.

If Hubei Fuxing Science and TechnologyLtd'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 Hubei Fuxing Science and TechnologyLtd.

Our Take On Hubei Fuxing Science and TechnologyLtd's Profit Performance

Hubei Fuxing Science and TechnologyLtd issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Hubei Fuxing Science and TechnologyLtd's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. If you'd like to know more about Hubei Fuxing Science and TechnologyLtd as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 2 warning signs for Hubei Fuxing Science and TechnologyLtd you should be mindful of and 1 of these is a bit unpleasant.

This note has only looked at a single factor that sheds light on the nature of Hubei Fuxing 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.