Hang Lung Properties' (HKG:101) Anemic Earnings Might Be Worse Than You Think

A lackluster earnings announcement from Hang Lung Properties Limited (HKG:101) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

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One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Hang Lung Properties increased the number of shares on issue by 5.7% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. 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. You can see a chart of Hang Lung Properties' EPS by clicking here.

A Look At The Impact Of Hang Lung Properties' Dilution On Its Earnings Per Share (EPS)

Unfortunately, Hang Lung Properties' profit is down 44% per year over three years. And even focusing only on the last twelve months, we see profit is down 24%. Sadly, earnings per share fell further, down a full 28% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Hang Lung Properties' earnings per share can increase, then the share price should too. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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.

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.

Our Take On Hang Lung Properties' Profit Performance

Over the last year Hang Lung Properties issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that Hang Lung Properties' true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. 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 1 warning sign for Hang Lung Properties you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Hang Lung Properties' profit. 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 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.