Yuexiu Transport Infrastructure's (HKG:1052) Robust Earnings Are Not All Good News For Shareholders

Despite posting strong earnings, Yuexiu Transport Infrastructure Limited's (HKG:1052) stock didn't move much over the last week. We decided to have a deeper look, and we believe that investors might be worried about several concerning factors that we found.

View our latest analysis for Yuexiu Transport Infrastructure

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Yuexiu Transport Infrastructure expanded the number of shares on issue by 487% over the last year. 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. You can see a chart of Yuexiu Transport Infrastructure's EPS by clicking here.

How Is Dilution Impacting Yuexiu Transport Infrastructure's Earnings Per Share? (EPS)

Yuexiu Transport Infrastructure has improved its profit over the last three years, with an annualized gain of 39% in that time. And the 813% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 813% in that time. So you can see that the dilution has had a fairly significant impact on shareholders.

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 Yuexiu Transport Infrastructure can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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.

The Impact Of Unusual Items On Profit

Finally, we should also consider the fact that unusual items boosted Yuexiu Transport Infrastructure's net profit by CN¥747m over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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. Yuexiu Transport Infrastructure had a rather significant contribution from unusual items relative to its profit to December 2021. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Yuexiu Transport Infrastructure's Profit Performance

To sum it all up, Yuexiu Transport Infrastructure got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. On reflection, the above-mentioned factors give us the strong impression that Yuexiu Transport Infrastructure'sunderlying earnings power is not as good as it might seem, based on the statutory profit numbers. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. When we did our research, we found 5 warning signs for Yuexiu Transport Infrastructure (3 are significant!) that we believe deserve your full attention.

Our examination of Yuexiu Transport Infrastructure 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. 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 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.