Weak Statutory Earnings May Not Tell The Whole Story For Farglory Free Trade Zone Investment Holding (TWSE:5607)

Last week's earnings announcement from Farglory Free Trade Zone Investment Holding Co., Ltd. (TWSE:5607) was disappointing to investors, with a sluggish profit figure. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

See our latest analysis for Farglory Free Trade Zone Investment Holding

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Farglory Free Trade Zone Investment Holding increased the number of shares on issue by 12% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. 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 Farglory Free Trade Zone Investment Holding's EPS by clicking here.

A Look At The Impact Of Farglory Free Trade Zone Investment Holding's Dilution On Its Earnings Per Share (EPS)

As you can see above, Farglory Free Trade Zone Investment Holding has been growing its net income over the last few years, with an annualized gain of 93% over three years. In comparison, earnings per share only gained 60% over the same period. Net profit actually dropped by 19% in the last year. But the EPS result was even worse, with the company recording a decline of 25%. So you can see that the dilution has had a bit of an impact on shareholders.

If Farglory Free Trade Zone Investment Holding's 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 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.

Our Take On Farglory Free Trade Zone Investment Holding's Profit Performance

Farglory Free Trade Zone Investment Holding issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Farglory Free Trade Zone Investment Holding's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 60% per annum growth in EPS for the last three. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 3 warning signs for Farglory Free Trade Zone Investment Holding you should be mindful of and 1 of these can't be ignored.

Today we've zoomed in on a single data point to better understand the nature of Farglory Free Trade Zone Investment Holding's profit. But there are plenty of other ways to inform your opinion of a company. 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 that insiders are buying.

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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.