Earnings Troubles May Signal Larger Issues for Shenzhen Farben Information TechnologyLtd (SZSE:300925) Shareholders

Shenzhen Farben Information Technology Co.,Ltd.'s (SZSE:300925) stock showed strength, with investors undeterred by its weak earnings report. We think that shareholders might be missing some concerning factors that our analysis found.

See our latest analysis for Shenzhen Farben Information TechnologyLtd

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Shenzhen Farben Information TechnologyLtd expanded the number of shares on issue by 15% 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. You can see a chart of Shenzhen Farben Information TechnologyLtd's EPS by clicking here.

How Is Dilution Impacting Shenzhen Farben Information TechnologyLtd's Earnings Per Share (EPS)?

Shenzhen Farben Information TechnologyLtd's net profit dropped by 5.2% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 12%. Sadly, earnings per share fell further, down a full 21% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if Shenzhen Farben Information TechnologyLtd'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 Shenzhen Farben Information TechnologyLtd.

Our Take On Shenzhen Farben Information TechnologyLtd's Profit Performance

Over the last year Shenzhen Farben Information TechnologyLtd issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that Shenzhen Farben Information 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. So while earnings quality is important, it's equally important to consider the risks facing Shenzhen Farben Information TechnologyLtd at this point in time. Every company has risks, and we've spotted 1 warning sign for Shenzhen Farben Information TechnologyLtd you should know about.

Today we've zoomed in on a single data point to better understand the nature of Shenzhen Farben Information TechnologyLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.