Wuxi Best Precision Machinery Co., Ltd. (SZSE:300580) just released a solid earnings report, and the stock displayed some strength. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.
In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Wuxi Best Precision Machinery increased the number of shares on issue by 13% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. 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 Wuxi Best Precision Machinery's historical EPS growth by clicking on this link.
How Is Dilution Impacting Wuxi Best Precision Machinery's Earnings Per Share (EPS)?
As you can see above, Wuxi Best Precision Machinery has been growing its net income over the last few years, with an annualized gain of 49% over three years. And in the last year the company managed to bump profit up by 15%. On the other hand, earnings per share are only up 8.8% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.
In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Wuxi Best Precision Machinery can grow EPS persistently. 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.
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 Wuxi Best Precision Machinery's Profit Performance
Each Wuxi Best Precision Machinery 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 Wuxi Best Precision Machinery's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 41% per annum growth in EPS for the last three. 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. If you want to do dive deeper into Wuxi Best Precision Machinery, you'd also look into what risks it is currently facing. For example - Wuxi Best Precision Machinery has 3 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 Wuxi Best Precision Machinery'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 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.