Last week's profit announcement from Zixin Group Holdings Limited (Catalist:42W) was underwhelming for investors, despite headline numbers being robust. Our analysis uncovered some concerning factors that we believe the market might be paying attention to.
See our latest analysis for Zixin Group Holdings
In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Zixin Group Holdings expanded the number of shares on issue by 15% over the last year. Therefore, each share now receives a smaller portion of profit. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a chart of Zixin Group Holdings' EPS by clicking here.
A Look At The Impact Of Zixin Group Holdings' Dilution On Its Earnings Per Share (EPS)
We don't have any data on the company's profits from three years ago. And even focusing only on the last twelve months, we don't have a meaningful growth rate because it made a loss a year ago, too. But mathematics aside, it is always good to see when a formerly unprofitable business come good (though we accept profit would have been higher if dilution had not been required). So you can see that the dilution has had a bit of an impact on shareholders.
If Zixin Group Holdings' 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 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 Zixin Group Holdings' Profit Performance
Zixin Group Holdings issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that Zixin Group Holdings' statutory profits are better than its underlying earnings power. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. So while earnings quality is important, it's equally important to consider the risks facing Zixin Group Holdings at this point in time. Every company has risks, and we've spotted 3 warning signs for Zixin Group Holdings you should know about.