Weak Statutory Earnings May Not Tell The Whole Story For Towngas Smart Energy (HKG:1083)

The subdued market reaction suggests that Towngas Smart Energy Company Limited's (HKG:1083) recent earnings didn't contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.

Check out our latest analysis for Towngas Smart Energy

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Towngas Smart Energy expanded the number of shares on issue by 6.2% over the last year. That means its earnings are split among a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. Check out Towngas Smart Energy's historical EPS growth by clicking on this link.

How Is Dilution Impacting Towngas Smart Energy's Earnings Per Share? (EPS)

Towngas Smart Energy has improved its profit over the last three years, with an annualized gain of 2.3% in that time. In contrast, earnings per share were actually down by 5.4% per year, in the exact same period. Net profit actually dropped by 13% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 16%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If Towngas Smart Energy's 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.

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 Towngas Smart Energy's Profit Performance

Over the last year Towngas Smart Energy issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that Towngas Smart Energy's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the 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 Towngas Smart Energy as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 5 warning signs for Towngas Smart Energy you should be mindful of and 1 of them is potentially serious.

Today we've zoomed in on a single data point to better understand the nature of Towngas Smart Energy's 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 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.