Shareholders were pleased with the recent earnings report from CN Logistics International Holdings Limited (HKG:2130). Despite this, we feel that there are some reasons to be cautious with these earnings.
Check out our latest analysis for CN Logistics International Holdings
To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, CN Logistics International Holdings issued 8.8% more new shares over the last year. As a result, its net income is now split between a greater number of shares. 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. Check out CN Logistics International Holdings' historical EPS growth by clicking on this link.
How Is Dilution Impacting CN Logistics International Holdings' Earnings Per Share (EPS)?
Unfortunately, CN Logistics International Holdings' profit is down 20% per year over three years. On the bright side, in the last twelve months it grew profit by 11%. But EPS was less impressive, up only 6.1% 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 CN Logistics International Holdings can grow EPS persistently. 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 CN Logistics International Holdings.
The Impact Of Unusual Items On Profit
Finally, we should also consider the fact that unusual items boosted CN Logistics International Holdings' net profit by HK$55m over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. We can see that CN Logistics International Holdings' positive unusual items were quite significant relative to its profit in the year to June 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.
Our Take On CN Logistics International Holdings' Profit Performance
In its last report CN Logistics International Holdings benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. Considering all this we'd argue CN Logistics International Holdings' profits probably give an overly generous impression of its sustainable level of profitability. If you want to do dive deeper into CN Logistics International Holdings, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 2 warning signs with CN Logistics International Holdings, and understanding these bad boys should be part of your investment process.
In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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 with high insider ownership.
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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.