Some May Be Optimistic About China Education Group Holdings' (HKG:839) Earnings

The market for China Education Group Holdings Limited's (HKG:839) shares didn't move much after it posted weak earnings recently. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

Check out our latest analysis for China Education Group Holdings

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, China Education Group Holdings issued 6.4% more new shares over the last year. That means its earnings are split among 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. Check out China Education Group Holdings' historical EPS growth by clicking on this link.

A Look At The Impact Of China Education Group Holdings' Dilution On Its Earnings Per Share (EPS)

Unfortunately, China Education Group Holdings' profit is down 71% per year over three years. And even focusing only on the last twelve months, we see profit is down 70%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 71% in the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if China Education Group Holdings' earnings per share can increase, then the share price should too. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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.

Our data indicates that China Education Group Holdings insiders have been buying shares! You can click here to find out who, and how much.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that China Education Group Holdings' profit suffered from unusual items, which reduced profit by CN¥1.9b in the last twelve months. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. China Education Group Holdings took a rather significant hit from unusual items in the year to August 2024. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Our Take On China Education Group Holdings' Profit Performance

To sum it all up, China Education Group Holdings took a hit from unusual items which pushed its profit down; without that, it would have made more money. But on the other hand, the company issued more shares, so without buying more shares each shareholder will end up with a smaller part of the profit. Based on these factors, we think that China Education Group Holdings' profits are a reasonably conservative guide to its underlying profitability. If you want to do dive deeper into China Education Group Holdings, you'd also look into what risks it is currently facing. Case in point: We've spotted 4 warning signs for China Education Group Holdings you should be mindful of and 1 of them is a bit unpleasant.

Our examination of China Education Group Holdings has focussed on certain factors that can make its earnings look better than they are. 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.