Guizhou Aviation Technical Development Co., Ltd's (SHSE:688239) robust recent earnings didn't do much to move the stock. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.
Check out our latest analysis for Guizhou Aviation Technical Development
One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Guizhou Aviation Technical Development increased the number of shares on issue by 5.4% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. 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. Check out Guizhou Aviation Technical Development's historical EPS growth by clicking on this link.
How Is Dilution Impacting Guizhou Aviation Technical Development's Earnings Per Share (EPS)?
As you can see above, Guizhou Aviation Technical Development has been growing its net income over the last few years, with an annualized gain of 232% over three years. But EPS was only up 148% per year, in the exact same period. And in the last year the company managed to bump profit up by 19%. But in comparison, EPS only increased by 17% over the same period. So you can see that the dilution has had a bit of an impact on shareholders.
Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Guizhou Aviation Technical Development 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 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.
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 Guizhou Aviation Technical Development's Profit Performance
Each Guizhou Aviation Technical Development share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Guizhou Aviation Technical Development'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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example - Guizhou Aviation Technical Development has 2 warning signs we think you should be aware of.
This note has only looked at a single factor that sheds light on the nature of Guizhou Aviation Technical Development's 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.