CHUNGTAI RESOURCE Technology (TWSE:6923) Strong Profits May Be Masking Some Underlying Issues

The recent earnings posted by CHUNGTAI RESOURCE Technology CORP. (TWSE:6923) were solid, but the stock didn't move as much as we expected. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

See our latest analysis for CHUNGTAI RESOURCE Technology

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, CHUNGTAI RESOURCE Technology issued 11% more new shares over the last year. As a result, its net income is now split between 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 CHUNGTAI RESOURCE Technology's historical EPS growth by clicking on this link.

A Look At The Impact Of CHUNGTAI RESOURCE Technology's Dilution On Its Earnings Per Share (EPS)

As you can see above, CHUNGTAI RESOURCE Technology has been growing its net income over the last few years, with an annualized gain of 238% over three years. But EPS was only up 222% per year, in the exact same period. And the 58% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 57% 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 CHUNGTAI RESOURCE Technology 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of CHUNGTAI RESOURCE Technology.

Our Take On CHUNGTAI RESOURCE Technology's Profit Performance

CHUNGTAI RESOURCE Technology shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that CHUNGTAI RESOURCE Technology's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into CHUNGTAI RESOURCE Technology, you'd also look into what risks it is currently facing. While conducting our analysis, we found that CHUNGTAI RESOURCE Technology has 2 warning signs and it would be unwise to ignore them.

This note has only looked at a single factor that sheds light on the nature of CHUNGTAI RESOURCE Technology's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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.