China Energy Development Holdings (HKG:228) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

China Energy Development Holdings Limited (HKG:228) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

Check out our latest analysis for China Energy Development 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 Energy Development Holdings issued 28% more new shares over the last year. That means its earnings are split among 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. Check out China Energy Development Holdings' historical EPS growth by clicking on this link.

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

As you can see above, China Energy Development Holdings has been growing its net income over the last few years, with an annualized gain of 7.6% over three years. And at a glance the 20% gain in profit over the last year impresses. On the other hand, earnings per share are only up 20% in that time. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if China Energy Development Holdings can grow EPS persistently. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of China Energy Development Holdings.

Our Take On China Energy Development Holdings' Profit Performance

China Energy Development Holdings 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 China Energy Development Holdings' statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 7.1% over the last three years. 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. If you'd like to know more about China Energy Development Holdings as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 1 warning sign for China Energy Development Holdings and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of China Energy Development Holdings' 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. 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.