Guangdong Kingstrong Technology Co., Ltd.'s (SZSE:300629) stock showed strength, with investors undeterred by its weak earnings report. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Guangdong Kingstrong Technology issued 5.6% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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 Guangdong Kingstrong Technology's historical EPS growth by clicking on this link.

How Is Dilution Impacting Guangdong Kingstrong Technology's Earnings Per Share (EPS)?

As you can see above, Guangdong Kingstrong Technology has been growing its net income over the last few years, with an annualized gain of 133% over three years. But EPS was only up 119% per year, in the exact same period. Net income was down 2.7% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 5.3%. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If Guangdong Kingstrong Technology'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 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 Guangdong Kingstrong Technology.

Our Take On Guangdong Kingstrong Technology's Profit Performance

Guangdong Kingstrong Technology issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that Guangdong Kingstrong Technology's statutory profits are better than its underlying earnings power. 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'd like to know more about Guangdong Kingstrong Technology as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 1 warning sign for Guangdong Kingstrong Technology you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Guangdong Kingstrong Technology'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. 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.