Huabang Technology Holdings' (HKG:3638) Shareholders May Want To Dig Deeper Than Statutory Profit

Huabang Technology Holdings Limited's (HKG:3638) healthy profit numbers didn't contain any surprises for investors. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

See our latest analysis for Huabang Technology Holdings

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Huabang Technology Holdings increased the number of shares on issue by 80% over the last twelve months by issuing new shares. That means its earnings are split among 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 Huabang Technology Holdings' historical EPS growth by clicking on this link.

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

Three years ago, Huabang Technology Holdings lost money. And even focusing only on the last twelve months, we don't have a meaningful growth rate because it made a loss a year ago, too. What we do know is that while it's great to see a profit over the last twelve months, that profit would have been better, on a per share basis, if the company hadn't needed to issue shares. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

If Huabang Technology Holdings' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 Huabang Technology Holdings.

Our Take On Huabang Technology Holdings' Profit Performance

Over the last year Huabang Technology Holdings issued new shares and so, there's a noteworthy divergence between EPS and net income growth. For this reason, we think that Huabang Technology Holdings' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. If you'd like to know more about Huabang Technology Holdings as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 2 warning signs we've spotted with Huabang Technology Holdings (including 1 which is significant).

Today we've zoomed in on a single data point to better understand the nature of Huabang Technology Holdings' profit. 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. 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.

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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.