Yingkou Jinchen Machinery's (SHSE:603396) Anemic Earnings Might Be Worse Than You Think

The market rallied behind Yingkou Jinchen Machinery Co., Ltd.'s (SHSE:603396) stock, leading do a rise in the share price after its recent weak earnings report. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.

View our latest analysis for Yingkou Jinchen Machinery

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Yingkou Jinchen Machinery expanded the number of shares on issue by 19% over the last year. Therefore, each share now receives a smaller portion of profit. 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 Yingkou Jinchen Machinery's EPS by clicking here.

How Is Dilution Impacting Yingkou Jinchen Machinery's Earnings Per Share (EPS)?

Unfortunately, Yingkou Jinchen Machinery's profit is down 13% per year over three years. But over the last year profit has held pretty steady. But EPS was considerably worse, since it declined 13% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Yingkou Jinchen Machinery's earnings per share can increase, then the share price should too. 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 Yingkou Jinchen Machinery.

Our Take On Yingkou Jinchen Machinery's Profit Performance

Over the last year Yingkou Jinchen Machinery issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that Yingkou Jinchen Machinery's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. You'd be interested to know, that we found 2 warning signs for Yingkou Jinchen Machinery and you'll want to know about them.

Today we've zoomed in on a single data point to better understand the nature of Yingkou Jinchen Machinery'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 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.