C&D International Investment Group's (HKG:1908) Problems Go Beyond Weak Profit

The subdued market reaction suggests that C&D International Investment Group Limited's (HKG:1908) recent earnings didn't contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.

View our latest analysis for C&D International Investment Group

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. C&D International Investment Group expanded the number of shares on issue by 9.3% over the last year. As a result, its net income is now split between a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. Check out C&D International Investment Group's historical EPS growth by clicking on this link.

How Is Dilution Impacting C&D International Investment Group's Earnings Per Share (EPS)?

As you can see above, C&D International Investment Group has been growing its net income over the last few years, with an annualized gain of 54% over three years. In comparison, earnings per share only gained 5.5% over the same period. Net profit actually dropped by 17% in the last year. But the EPS result was even worse, with the company recording a decline of 23%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If C&D International Investment Group's 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 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 C&D International Investment Group's Profit Performance

C&D International Investment Group issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that C&D International Investment Group's true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 5.5% 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 C&D International Investment Group as a business, it's important to be aware of any risks it's facing. For instance, we've identified 5 warning signs for C&D International Investment Group (1 is potentially serious) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of C&D International Investment Group's 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. 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 with significant insider holdings to be useful.

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

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.