We Think That There Are Issues Underlying Beijing BDStar Navigation's (SZSE:002151) Earnings

Beijing BDStar Navigation Co., Ltd.'s (SZSE:002151) stock was strong after they recently reported robust earnings. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.

See our latest analysis for Beijing BDStar Navigation

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Beijing BDStar Navigation increased the number of shares on issue by 6.0% over the last twelve months by issuing new shares. 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. Check out Beijing BDStar Navigation's historical EPS growth by clicking on this link.

How Is Dilution Impacting Beijing BDStar Navigation's Earnings Per Share (EPS)?

As you can see above, Beijing BDStar Navigation has been growing its net income over the last few years, with an annualized gain of 10.0% over three years. And over the last 12 months, the company grew its profit by 11%. On the other hand, earnings per share are only up 6.8% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Beijing BDStar Navigation 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 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 Beijing BDStar Navigation.

Our Take On Beijing BDStar Navigation's Profit Performance

Beijing BDStar Navigation shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Beijing BDStar Navigation's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 6.8% 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. In terms of investment risks, we've identified 2 warning signs with Beijing BDStar Navigation, and understanding them should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Beijing BDStar Navigation's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying 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.