Unsurprisingly, Hangzhou Todaytec Digital Co., Ltd's (SZSE:300743) stock price was strong on the back of its healthy earnings report. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Hangzhou Todaytec Digital increased the number of shares on issue by 11% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. 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 Hangzhou Todaytec Digital's historical EPS growth by clicking on this link.

How Is Dilution Impacting Hangzhou Todaytec Digital's Earnings Per Share (EPS)?

Hangzhou Todaytec Digital has improved its profit over the last three years, with an annualized gain of 108% in that time. And at a glance the 69% gain in profit over the last year impresses. But in comparison, EPS only increased by 59% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Hangzhou Todaytec Digital shareholders will want to see that EPS figure continue to increase. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hangzhou Todaytec Digital.

Our Take On Hangzhou Todaytec Digital's Profit Performance

Each Hangzhou Todaytec Digital 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 Hangzhou Todaytec Digital's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into Hangzhou Todaytec Digital, you'd also look into what risks it is currently facing. For example - Hangzhou Todaytec Digital 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 Hangzhou Todaytec Digital'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.