Following the release of a positive earnings report recently, CN Logistics International Holdings Limited's (HKG:2130) stock performed well. However, we think that investors should be cautious when interpreting the profit numbers.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. CN Logistics International Holdings expanded the number of shares on issue by 8.8% over the last year. Therefore, each share now receives a smaller portion of profit. 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 CN Logistics International Holdings' EPS by clicking here.

How Is Dilution Impacting CN Logistics International Holdings' Earnings Per Share (EPS)?

Unfortunately, CN Logistics International Holdings' profit is down 20% per year over three years. The good news is that profit was up 11% in the last twelve months. But EPS was less impressive, up only 6.1% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So CN Logistics International Holdings 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of CN Logistics International Holdings.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that CN Logistics International Holdings' profit was boosted by unusual items worth HK$55m in the last twelve months. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. We can see that CN Logistics International Holdings' positive unusual items were quite significant relative to its profit in the year to June 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 CN Logistics International Holdings' Profit Performance

To sum it all up, CN Logistics International Holdings got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. For the reasons mentioned above, we think that a perfunctory glance at CN Logistics International Holdings' statutory profits might make it look better than it really is on an underlying level. If you'd like to know more about CN Logistics International Holdings as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that CN Logistics International Holdings has 2 warning signs and it would be unwise to ignore these bad boys.

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.