The recent earnings posted by Damon Technology Group Co.,Ltd. (SHSE:688360) were solid, but the stock didn't move as much as we expected. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.
To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Damon Technology GroupLtd expanded the number of shares on issue by 12% over the last year. 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. You can see a chart of Damon Technology GroupLtd's EPS by clicking here.
A Look At The Impact Of Damon Technology GroupLtd's Dilution On Its Earnings Per Share (EPS)
Damon Technology GroupLtd has improved its profit over the last three years, with an annualized gain of 28% in that time. However, net income was pretty flat over the last year with a miniscule increase. Meanwhile, EPS was actually down a full 3.4% over the period, highlighting just how different the profits look from a per-share perspective. Therefore, the dilution is having a noteworthy influence on shareholder returns.
In the long term, if Damon Technology GroupLtd's earnings per share can increase, then the share price should too. 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.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Damon Technology GroupLtd.
Our Take On Damon Technology GroupLtd's Profit Performance
Damon Technology GroupLtd shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Damon Technology GroupLtd's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 21% 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 Damon Technology GroupLtd, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 2 warning signs for Damon Technology GroupLtd you should know about.
Today we've zoomed in on a single data point to better understand the nature of Damon Technology GroupLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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.