We have not seen Termbray Industries International (Holdings) Limited’s (HKG: 93) stocks surged when it recently posted robust earnings. We took a deeper look at the numbers and found that shareholders might be concerned about some underlying weaknesses.

See our latest review for Termbray Industries International (Holdings)

A critical aspect of assessing earnings quality is determining how much a company dilutes its shareholders. Indeed, Termbray Industries International (Holdings) has increased the number of issued shares by 36% over the past twelve months by issuing new shares. As a result, each share now receives a smaller portion of the profits. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smallest numbers that per share value. Discover the historic EPS growth of Termbray Industries International (Holdings) by clicking on this link.

A look at the impact of the dilution of Termbray Industries International (Holdings) on its earnings per share (EPS).

In fact, we don’t know how much the company made or lost three years ago because we don’t have the data. Looking back at last year, we still can’t talk about growth rate consistently, since it made a loss last year. What we do know is that while it’s great to see a profit over the past twelve months, that profit would have been better, per share, if the company hadn’t needed to issue stock. So you can see that the dilution had a fairly significant impact on the shareholders.

While Termbray Industries International (Holdings) EPS can grow over time, it dramatically improves the chances of the stock price moving in the same direction. But on the other hand, we would be a lot less excited to hear that profit (but not EPS) was improving. For the ordinary retail shareholder, EPS is an excellent metric for verifying your hypothetical “share” of the company’s earnings.

To note: we always recommend that investors check the strength of their balance sheets. Click here to access our analysis of Termbray Industries International (Holdings) balance sheet.

How do unusual items influence profit?

Finally, we must also take into account that unusual items boosted Termbray Industries International (Holdings) net profit by HK $ 38 million over the past year. We cannot deny that higher profits generally leave us optimistic, but we would prefer the profits to be sustainable. When we analyzed the vast majority of listed companies around the world, we found that important unusual items are often not repeated. Which is hardly surprising, given the name. Termbray Industries International (Holdings) made a fairly large contribution of unusual items to its profit until December 2020. All other things being equal, this would likely make statutory profit a poor indicator of corporate power. underlying profit.

Our perspective on earnings performance of Termbray Industries International (Holdings)

To sum it all up, Termbray Industries International (Holdings) had a nice push to take advantage of unusual items; without it, his statutory results would have looked worse. In addition, he issued many new shares, ensuring that every shareholder (who didn’t pay more money) now owns a smaller proportion of the company. Taking all this into account, we would say that Termbray Industries International (Holdings) earnings probably give an overly generous impression of its sustainable level of profitability. If you want to learn more about Termbray Industries International (Holdings), you will also take a look at the risks it currently faces. At Simply Wall St, we found 3 warning signs for Termbray Industries International (Holdings) and we think they deserve your attention.

In this article, we’ve looked at a number of factors that can hinder the usefulness of profit numbers, and we’ve come out of it with caution. But there are plenty of other ways to give your opinion about a business. For example, many people see a high return on equity as an indication of a favorable business economy, while others like to “follow the money” and look for stocks that insiders are buying. Then you might want to see this free collection of companies offering a high return on equity, or that list of stocks bought by insiders.

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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in any of the stocks mentioned.
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