Last week's earnings announcement from Ningbo Ronbay New Energy Technology Co.,Ltd. (SHSE:688005) was disappointing to investors, with a sluggish profit figure. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.
In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Ningbo Ronbay New Energy TechnologyLtd increased the number of shares on issue by 7.4% over the last twelve months by issuing new shares. 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. Check out Ningbo Ronbay New Energy TechnologyLtd's historical EPS growth by clicking on this link.
How Is Dilution Impacting Ningbo Ronbay New Energy TechnologyLtd's Earnings Per Share (EPS)?
Ningbo Ronbay New Energy TechnologyLtd has improved its profit over the last three years, with an annualized gain of 173% in that time. Net profit actually dropped by 57% in the last year. But the EPS result was even worse, with the company recording a decline of 58%. So you can see that the dilution has had a bit of an impact on shareholders.
If Ningbo Ronbay New Energy TechnologyLtd'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 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 Ningbo Ronbay New Energy TechnologyLtd's Profit Performance
Over the last year Ningbo Ronbay New Energy TechnologyLtd issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that Ningbo Ronbay New Energy TechnologyLtd's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. At Simply Wall St, we found 3 warning signs for Ningbo Ronbay New Energy TechnologyLtd and we think they deserve your attention.
This note has only looked at a single factor that sheds light on the nature of Ningbo Ronbay New Energy TechnologyLtd's profit. 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 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.