Hubei Fuxing Science and Technology Co.,Ltd's (SZSE:000926) recent weak earnings report didn't cause a big stock movement. However, we believe that investors should be aware of some underlying factors which may be of concern.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Hubei Fuxing Science and TechnologyLtd expanded the number of shares on issue by 24% 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 Hubei Fuxing Science and TechnologyLtd's EPS by clicking here.

How Is Dilution Impacting Hubei Fuxing Science and TechnologyLtd's Earnings Per Share (EPS)?

Hubei Fuxing Science and TechnologyLtd's net profit dropped by 84% per year over the last three years. Even looking at the last year, profit was still down 70%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 68% in the same period. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

If Hubei Fuxing Science and TechnologyLtd'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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hubei Fuxing Science and TechnologyLtd.

Our Take On Hubei Fuxing Science and TechnologyLtd's Profit Performance

Hubei Fuxing Science and TechnologyLtd 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 Hubei Fuxing Science and TechnologyLtd's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Our analysis shows 2 warning signs for Hubei Fuxing Science and TechnologyLtd (1 shouldn't be ignored!) and we strongly recommend you look at these before investing.

This note has only looked at a single factor that sheds light on the nature of Hubei Fuxing Science and TechnologyLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 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.