Country Garden Services Holdings' (HKG:6098) Profits Appear To Have Quality Issues

Country Garden Services Holdings Company Limited (HKG:6098) just released a solid earnings report, and the stock displayed some strength. However, we think that shareholders should be cautious as we found some worrying factors underlying the profit.

See our latest analysis for Country Garden Services Holdings

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Country Garden Services Holdings expanded the number of shares on issue by 11% over the last year. 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. Check out Country Garden Services Holdings' historical EPS growth by clicking on this link.

A Look At The Impact Of Country Garden Services Holdings' Dilution on Its Earnings Per Share (EPS).

Country Garden Services Holdings has improved its profit over the last three years, with an annualized gain of 336% in that time. But EPS was only up 247% per year, in the exact same period. And at a glance the 50% gain in profit over the last year impresses. On the other hand, earnings per share are only up 32% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if Country Garden Services Holdings can grow EPS persistently. 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 Country Garden Services Holdings' Profit Performance

Country Garden Services Holdings shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that Country Garden Services Holdings' true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. While conducting our analysis, we found that Country Garden Services Holdings has 3 warning signs and it would be unwise to ignore them.

This note has only looked at a single factor that sheds light on the nature of Country Garden Services Holdings' 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 that insiders are buying.

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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.