Keding Enterprises' (TWSE:6655) Sluggish Earnings Might Be Just The Beginning Of Its Problems

The subdued market reaction suggests that Keding Enterprises Co., Ltd.'s (TWSE:6655) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

See our latest analysis for Keding Enterprises

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Keding Enterprises expanded the number of shares on issue by 11% over the last year. As a result, its net income is now split between 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 Keding Enterprises' EPS by clicking here.

How Is Dilution Impacting Keding Enterprises' Earnings Per Share (EPS)?

Keding Enterprises' net profit dropped by 16% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 36%. Sadly, earnings per share fell further, down a full 37% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

If Keding Enterprises' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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 Keding Enterprises.

Our Take On Keding Enterprises' Profit Performance

Over the last year Keding Enterprises issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that Keding Enterprises' statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 4 warning signs for Keding Enterprises you should be mindful of and 2 of these make us uncomfortable.

Today we've zoomed in on a single data point to better understand the nature of Keding Enterprises' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 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.