We Believe That C&G Hi Tech's (KOSDAQ:264660) Weak Earnings Are A Good Indicator Of Underlying Profitability

C&G Hi Tech Co., Ltd's (KOSDAQ:264660) stock wasn't much affected by its recent lackluster earnings numbers. We did some analysis and found some concerning details beneath the statutory profit number.

View our latest analysis for C&G Hi Tech

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, C&G Hi Tech issued 5.2% more new shares 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 C&G Hi Tech's EPS by clicking here.

How Is Dilution Impacting C&G Hi Tech's Earnings Per Share (EPS)?

Unfortunately, we don't have any visibility into its profits three years back, because we lack the data. And even focusing only on the last twelve months, we see profit is down 80%. Sadly, earnings per share fell further, down a full 82% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if C&G Hi Tech's earnings per share can increase, then the share price should too. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of C&G Hi Tech.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that C&G Hi Tech's profit was boosted by unusual items worth ₩1.8b in the last twelve months. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. We can see that C&G Hi Tech's positive unusual items were quite significant relative to its profit in the year to September 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On C&G Hi Tech's Profit Performance

To sum it all up, C&G Hi Tech got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. For the reasons mentioned above, we think that a perfunctory glance at C&G Hi Tech's statutory profits might make it look better than it really is on an underlying level. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Be aware that C&G Hi Tech is showing 6 warning signs in our investment analysis and 1 of those shouldn't be ignored...

Our examination of C&G Hi Tech 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 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.