Yingkou Jinchen Machinery's (SHSE:603396) Promising Earnings May Rest On Soft Foundations

Yingkou Jinchen Machinery Co., Ltd.'s (SHSE:603396) 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 Yingkou Jinchen Machinery

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Yingkou Jinchen Machinery issued 19% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. Check out Yingkou Jinchen Machinery's historical EPS growth by clicking on this link.

A Look At The Impact Of Yingkou Jinchen Machinery's Dilution On Its Earnings Per Share (EPS)

You can see above that Yingkou Jinchen Machinery's profit is about the same as it was three years back. In contrast, its earnings per share is down 11% per year over the same period. The profit growth of 53% in the last twelve months certainly seems very impressive. Then again, EPS was only up 50% over that period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So Yingkou Jinchen Machinery shareholders will want to see that EPS figure continue to increase. 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 Yingkou Jinchen Machinery.

Our Take On Yingkou Jinchen Machinery's Profit Performance

Each Yingkou Jinchen Machinery share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Yingkou Jinchen Machinery's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 50% in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. You'd be interested to know, that we found 1 warning sign for Yingkou Jinchen Machinery and you'll want to know about this.

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. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.