Is There More To The Story Than Liaoning PortLtd's (HKG:2880) Earnings Growth?

Broadly speaking, profitable businesses are less risky than unprofitable ones. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. In this article, we'll look at how useful this year's statutory profit is, when analysing Liaoning PortLtd (HKG:2880).

We like the fact that Liaoning PortLtd made a profit of CN¥888.5m on its revenue of CN¥6.63b, in the last year. The chart below shows how profit has actually increased over the last three years, even while revenue has declined.

Check out our latest analysis for Liaoning PortLtd

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. In this article we'll look at how Liaoning PortLtd is impacting shareholders by issuing new shares. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Liaoning PortLtd.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Liaoning PortLtd expanded the number of shares on issue by 75% over the last year. As a result, its net income is now split between a greater number of shares. 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 Liaoning PortLtd's historical EPS growth by clicking on this link.

How Is Dilution Impacting Liaoning PortLtd's Earnings Per Share? (EPS)

As you can see above, Liaoning PortLtd has been growing its net income over the last few years, with an annualized gain of 57% over three years. And at a glance the 43% gain in profit over the last year impresses. On the other hand, earnings per share are only up 43% in that time. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So Liaoning PortLtd shareholders will want to see that EPS figure continue to increase. 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.

Our Take On Liaoning PortLtd's Profit Performance

Liaoning PortLtd shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. For this reason, we think that Liaoning PortLtd's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Nonetheless, it's still worth noting that its earnings per share have grown at 56% over the last three years. 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 want to do dive deeper into Liaoning PortLtd, you'd also look into what risks it is currently facing. Case in point: We've spotted 2 warning signs for Liaoning PortLtd you should be mindful of and 1 of them doesn't sit too well with us.

This note has only looked at a single factor that sheds light on the nature of Liaoning PortLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying.

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This article by Simply Wall St is general in nature. 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.
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