Grand T G Gold Holdings' (HKG:8299) Earnings Are Built On Soft Foundations

Shareholders didn't seem to be thrilled with Grand T G Gold Holdings Limited's (HKG:8299) recent earnings report, despite healthy profit numbers. Our analysis suggests they may be concerned about some underlying details.

Check out our latest analysis for Grand T G Gold Holdings

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Grand T G Gold Holdings issued 5.2% more new shares 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. Check out Grand T G Gold Holdings' historical EPS growth by clicking on this link.

A Look At The Impact Of Grand T G Gold Holdings' Dilution On Its Earnings Per Share (EPS)

Three years ago, Grand T G Gold Holdings lost money. On the bright side, in the last twelve months it grew profit by 112%. But EPS was less impressive, up only 92% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Grand T G Gold Holdings 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Grand T G Gold Holdings.

The Impact Of Unusual Items On Profit

Alongside that dilution, it's also important to note that Grand T G Gold Holdings' profit was boosted by unusual items worth HK$31m in the last twelve months. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. We can see that Grand T G Gold Holdings' positive unusual items were quite significant relative to its profit in the year to March 2024. 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 Grand T G Gold Holdings' Profit Performance

To sum it all up, Grand T G Gold Holdings got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. Considering all this we'd argue Grand T G Gold Holdings' profits probably give an overly generous impression of its sustainable level of profitability. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 4 warning signs for Grand T G Gold Holdings you should be aware of.

Our examination of Grand T G Gold Holdings 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 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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com