China Tontine Wines Group's (HKG:389) Earnings Aren't As Good As They Appear

We didn't see China Tontine Wines Group Limited's (HKG:389) stock surge when it reported robust earnings recently. We think that investors might be worried about the foundations the earnings are built on.

Check out our latest analysis for China Tontine Wines Group

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 Tontine Wines Group issued 31% more new shares over the last year. That means its earnings are split among a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. Check out China Tontine Wines Group's historical EPS growth by clicking on this link.

How Is Dilution Impacting China Tontine Wines Group's Earnings Per Share? (EPS)

China Tontine Wines Group was losing money three years ago. And even focusing only on the last twelve months, we don't have a meaningful growth rate because it made a loss a year ago, too. What we do know is that while it's great to see a profit over the last twelve months, that profit would have been better, on a per share basis, if the company hadn't needed to issue shares. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

If China Tontine Wines Group's 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 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 Tontine Wines Group.

The Impact Of Unusual Items On Profit

Finally, we should also consider the fact that unusual items boosted China Tontine Wines Group's net profit by CN¥7.5m over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. China Tontine Wines Group had a rather significant contribution from unusual items relative to its profit to December 2021. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On China Tontine Wines Group's Profit Performance

In its last report China Tontine Wines Group benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. For the reasons mentioned above, we think that a perfunctory glance at China Tontine Wines Group's statutory profits might make it look better than it really is on an underlying level. If you'd like to know more about China Tontine Wines Group as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 3 warning signs for China Tontine Wines Group you should be aware of.

Our examination of China Tontine Wines Group has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. But there are plenty of other ways to inform your opinion of a company. 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.