IVD Medical Holding Limited's (HKG:1931) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.
In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. IVD Medical Holding expanded the number of shares on issue by 20% 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. Check out IVD Medical Holding's historical EPS growth by clicking on this link.
A Look At The Impact Of IVD Medical Holding's Dilution On Its Earnings Per Share (EPS)
As you can see above, IVD Medical Holding has been growing its net income over the last few years, with an annualized gain of 49% over three years. In comparison, earnings per share only gained 32% over the same period. And over the last 12 months, the company grew its profit by 9.3%. Meanwhile, EPS was flat over the same period. So you can see that the dilution has had a bit of an impact on shareholders.
In the long term, if IVD Medical Holding'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 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 IVD Medical Holding.
Our Take On IVD Medical Holding's Profit Performance
IVD Medical Holding 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 IVD Medical Holding's true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 32% over the last three years. 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. While conducting our analysis, we found that IVD Medical Holding has 1 warning sign and it would be unwise to ignore this.
This note has only looked at a single factor that sheds light on the nature of IVD Medical Holding's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.