Additional Considerations Required While Assessing IVD Medical Holding's (HKG:1931) Strong Earnings

IVD Medical Holding Limited's (HKG:1931) stock was strong after they recently reported robust earnings. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.

See our latest analysis for IVD Medical Holding

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. IVD Medical Holding expanded the number of shares on issue by 20% over the last year. As a result, its net income is now split between 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. You can see a chart of IVD Medical Holding's EPS by clicking here.

How Is Dilution Impacting IVD Medical Holding's Earnings Per Share (EPS)?

As you can see above, IVD Medical Holding has been growing its net income over the last few years, with an annualized gain of 31% over three years. And over the last 12 months, the company grew its profit by 12%. But in comparison, EPS only increased by 12% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So IVD Medical Holding shareholders will want to see that EPS figure continue to increase. 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 IVD Medical Holding.

Our Take On IVD Medical Holding's Profit Performance

Each IVD Medical Holding share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that IVD Medical Holding's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 28% over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you'd like to know more about IVD Medical Holding as a business, it's important to be aware of any risks it's facing. To help with this, we've discovered 3 warning signs (1 is significant!) that you ought to be aware of before buying any shares in IVD Medical Holding.

Today we've zoomed in on a single data point to better understand the nature of IVD Medical Holding's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.