Shenzhen Kaizhong Precision Technology Co., Ltd.'s (SZSE:002823) stock was strong after they recently reported robust earnings. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Shenzhen Kaizhong Precision Technology increased the number of shares on issue by 14% 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 Shenzhen Kaizhong Precision Technology's historical EPS growth by clicking on this link.

How Is Dilution Impacting Shenzhen Kaizhong Precision Technology's Earnings Per Share (EPS)?

Three years ago, Shenzhen Kaizhong Precision Technology lost money. On the bright side, in the last twelve months it grew profit by 317%. On the other hand, earnings per share are only up 291% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So Shenzhen Kaizhong Precision Technology 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 Shenzhen Kaizhong Precision Technology.

Our Take On Shenzhen Kaizhong Precision Technology's Profit Performance

Shenzhen Kaizhong Precision Technology shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that Shenzhen Kaizhong Precision Technology's true underlying earnings power is actually less than its statutory profit. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over the last year. 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'd like to know more about Shenzhen Kaizhong Precision Technology as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 3 warning signs for Shenzhen Kaizhong Precision Technology you should know about.

This note has only looked at a single factor that sheds light on the nature of Shenzhen Kaizhong Precision Technology'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 with significant insider holdings 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.