We Think That There Are More Issues For C&G Hi Tech (KOSDAQ:264660) Than Just Sluggish Earnings

C&G Hi Tech Co., Ltd's (KOSDAQ:264660) recent weak earnings report didn't cause a big stock movement. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

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 8.9% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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 C&G Hi Tech's historical EPS growth by clicking on this link.

A Look At The Impact Of C&G Hi Tech's Dilution On Its Earnings Per Share (EPS)

We don't have any data on the company's profits from three years ago. And even focusing only on the last twelve months, we see profit is down 24%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 27% in the same period. So you can see that the dilution has had a bit of an impact on shareholders.

If C&G Hi Tech's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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 C&G Hi Tech.

How Do Unusual Items Influence Profit?

Finally, we should also consider the fact that unusual items boosted C&G Hi Tech's net profit by ₩2.1b over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. If C&G Hi Tech doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. 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. If you'd like to know more about C&G Hi Tech as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 4 warning signs for C&G Hi Tech (of which 1 is concerning!) you should know about.

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. 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.