Chia Her Industrial's (TWSE:1449) Earnings Aren't As Good As They Appear

Strong earnings weren't enough to please Chia Her Industrial Co., Ltd.'s (TWSE:1449) shareholders over the last week. Our analysis found several concerning factors in the earnings report beyond the strong statutory profit number.

View our latest analysis for Chia Her Industrial

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, Chia Her Industrial issued 20% more new shares over the last year. That means its earnings are split among 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. You can see a chart of Chia Her Industrial's EPS by clicking here.

How Is Dilution Impacting Chia Her Industrial's Earnings Per Share (EPS)?

Chia Her Industrial's net profit dropped by 39% per year over the last three years. On the bright side, in the last twelve months it grew profit by 71%. But EPS was less impressive, up only 65% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So Chia Her Industrial shareholders will want to see that EPS figure continue to increase. 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.

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.

How Do Unusual Items Influence Profit?

Finally, we should also consider the fact that unusual items boosted Chia Her Industrial's net profit by NT$102m 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. And that's as you'd expect, given these boosts are described as 'unusual'. Chia Her Industrial had a rather significant contribution from unusual items relative to its profit to September 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Chia Her Industrial's Profit Performance

In its last report Chia Her Industrial benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. 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 Chia Her Industrial's statutory profits might make it look better than it really is on an underlying level. So while earnings quality is important, it's equally important to consider the risks facing Chia Her Industrial at this point in time. To help with this, we've discovered 5 warning signs (1 doesn't sit too well with us!) that you ought to be aware of before buying any shares in Chia Her Industrial.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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. 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.