Kingfa Science & Technology (India)'s (NSE:KINGFA) Earnings Are Weaker Than They Seem

Despite announcing strong earnings, Kingfa Science & Technology (India) Limited's (NSE:KINGFA) stock was sluggish. We think that the market might be paying attention to some underlying factors that they find to be concerning.

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One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Kingfa Science & Technology (India) issued 12% more new shares 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 Kingfa Science & Technology (India)'s historical EPS growth by clicking on this link.

A Look At The Impact Of Kingfa Science & Technology (India)'s Dilution On Its Earnings Per Share (EPS)

Kingfa Science & Technology (India) has improved its profit over the last three years, with an annualized gain of 337% in that time. But EPS was only up 313% per year, in the exact same period. And in the last year the company managed to bump profit up by 17%. But in comparison, EPS only increased by 11% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Kingfa Science & Technology (India) 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Kingfa Science & Technology (India).

Our Take On Kingfa Science & Technology (India)'s Profit Performance

Each Kingfa Science & Technology (India) share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Kingfa Science & Technology (India)'s statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. 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. While earnings are important, another area to consider is the balance sheet. We've done some analysis and you can see our take on Kingfa Science & Technology (India)'s balance sheet by clicking here.

Today we've zoomed in on a single data point to better understand the nature of Kingfa Science & Technology (India)'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 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.