China Merchants Expressway Network & Technology HoldingsLtd's (SZSE:001965) Profits May Not Reveal Underlying Issues

The recent earnings posted by China Merchants Expressway Network & Technology Holdings Co.,Ltd. (SZSE:001965) were solid, but the stock didn't move as much as we expected. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

Check out our latest analysis for China Merchants Expressway Network & Technology HoldingsLtd

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, China Merchants Expressway Network & Technology HoldingsLtd issued 9.9% more new shares over the last year. As a result, its net income is now split between a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. You can see a chart of China Merchants Expressway Network & Technology HoldingsLtd's EPS by clicking here.

How Is Dilution Impacting China Merchants Expressway Network & Technology HoldingsLtd's Earnings Per Share (EPS)?

China Merchants Expressway Network & Technology HoldingsLtd has improved its profit over the last three years, with an annualized gain of 31% in that time. And in the last year the company managed to bump profit up by 18%. But in comparison, EPS only increased by 9.8% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So China Merchants Expressway Network & Technology HoldingsLtd shareholders will want to see that EPS figure continue to increase. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On China Merchants Expressway Network & Technology HoldingsLtd's Profit Performance

Each China Merchants Expressway Network & Technology HoldingsLtd share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that China Merchants Expressway Network & Technology HoldingsLtd's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 24% per annum growth in EPS for the last three. 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 want to do dive deeper into China Merchants Expressway Network & Technology HoldingsLtd, you'd also look into what risks it is currently facing. To that end, you should learn about the 3 warning signs we've spotted with China Merchants Expressway Network & Technology HoldingsLtd (including 1 which is a bit concerning).

Today we've zoomed in on a single data point to better understand the nature of China Merchants Expressway Network & Technology HoldingsLtd'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 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.