Nanjing Sunlord Electronics' (SZSE:300975) Shareholders Have More To Worry About Than Only Soft Earnings

The market wasn't impressed with the soft earnings from Nanjing Sunlord Electronics Corporation Ltd. (SZSE:300975) recently. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

See our latest analysis for Nanjing Sunlord Electronics

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Nanjing Sunlord Electronics expanded the number of shares on issue by 5.4% 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. You can see a chart of Nanjing Sunlord Electronics' EPS by clicking here.

A Look At The Impact Of Nanjing Sunlord Electronics' Dilution On Its Earnings Per Share (EPS)

Unfortunately, Nanjing Sunlord Electronics' profit is down 77% per year over three years. And even focusing only on the last twelve months, we see profit is down 74%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 74% in the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If Nanjing Sunlord Electronics' 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 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 Nanjing Sunlord Electronics.

Our Take On Nanjing Sunlord Electronics' Profit Performance

Nanjing Sunlord Electronics issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Nanjing Sunlord Electronics' true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased 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. If you'd like to know more about Nanjing Sunlord Electronics as a business, it's important to be aware of any risks it's facing. Our analysis shows 5 warning signs for Nanjing Sunlord Electronics (3 are potentially serious!) and we strongly recommend you look at these before investing.

This note has only looked at a single factor that sheds light on the nature of Nanjing Sunlord Electronics' 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.

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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.