Weak Statutory Earnings May Not Tell The Whole Story For China Ruyi Holdings (HKG:136)

The subdued market reaction suggests that China Ruyi Holdings Limited's (HKG:136) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

Check out our latest analysis for China Ruyi Holdings

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. China Ruyi Holdings expanded the number of shares on issue by 16% over the last year. Therefore, each share now receives a smaller portion of profit. 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 Ruyi Holdings' historical EPS growth by clicking on this link.

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

As you can see above, China Ruyi Holdings has been growing its net income over the last few years, with an annualized gain of 5,637% over three years. But EPS was only up 4,293% per year, in the exact same period. Net income was down 13% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 22%. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If China Ruyi Holdings' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

How Do Unusual Items Influence Profit?

Finally, we should also consider the fact that unusual items boosted China Ruyi Holdings' net profit by CN¥241m over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. China Ruyi Holdings had a rather significant contribution from unusual items relative to its profit to December 2023. 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 Ruyi Holdings' Profit Performance

To sum it all up, China Ruyi Holdings got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. Considering all this we'd argue China Ruyi Holdings' profits probably give an overly generous impression of its sustainable level of profitability. If you want to do dive deeper into China Ruyi Holdings, you'd also look into what risks it is currently facing. Case in point: We've spotted 3 warning signs for China Ruyi Holdings you should be aware of.

Our examination of China Ruyi 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 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. 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 that insiders are buying 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.