Despite posting some strong earnings, the market for Chongqing Department Store Co.,Ltd.'s (SHSE:600729) stock hasn't moved much. Our analysis suggests that shareholders have noticed something concerning in the numbers.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Chongqing Department StoreLtd expanded the number of shares on issue by 10% over the last year. As a result, its net income is now split between a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. You can see a chart of Chongqing Department StoreLtd's EPS by clicking here.

How Is Dilution Impacting Chongqing Department StoreLtd's Earnings Per Share (EPS)?

Chongqing Department StoreLtd has improved its profit over the last three years, with an annualized gain of 25% in that time. And the 49% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 49% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if Chongqing Department StoreLtd 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.

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.

The Impact Of Unusual Items On Profit

Finally, we should also consider the fact that unusual items boosted Chongqing Department StoreLtd's net profit by CN¥126m over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. If Chongqing Department StoreLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Chongqing Department StoreLtd's Profit Performance

To sum it all up, Chongqing Department StoreLtd got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. Considering all this we'd argue Chongqing Department StoreLtd's profits probably give an overly generous impression of its sustainable level of profitability. If you'd like to know more about Chongqing Department StoreLtd as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 2 warning signs for Chongqing Department StoreLtd you should know about.

Our examination of Chongqing Department StoreLtd has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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. 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.