We Think You Should Be Aware Of Some Concerning Factors In China Gas Holdings' (HKG:384) Earnings

China Gas Holdings Limited's (HKG:384) robust recent earnings didn't do much to move the stock. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

View our latest analysis for China Gas Holdings

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, China Gas Holdings issued 6.9% more new shares over the last year. As a result, its net income is now split between 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 China Gas Holdings' EPS by clicking here.

A Look At The Impact Of China Gas Holdings' Dilution on Its Earnings Per Share (EPS).

As you can see above, China Gas Holdings has been growing its net income over the last few years, with an annualized gain of 72% over three years. And over the last 12 months, the company grew its profit by 14%. On the other hand, earnings per share are only up 14% 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 China Gas Holdings 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 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 China Gas Holdings' Profit Performance

Each China Gas Holdings share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that China Gas Holdings' true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 64% per annum growth in EPS for the last three. 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 China Gas Holdings as a business, it's important to be aware of any risks it's facing. For example, we've found that China Gas Holdings has 3 warning signs (1 makes us a bit uncomfortable!) that deserve your attention before going any further with your analysis.

Today we've zoomed in on a single data point to better understand the nature of China Gas 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 that insiders are buying to be useful.

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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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