Jinan Shengquan Group Share Holding Co., Ltd.'s (SHSE:605589) robust recent earnings didn't do much to move the stock. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.
To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Jinan Shengquan Group Share Holding expanded the number of shares on issue by 8.1% 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. Check out Jinan Shengquan Group Share Holding's historical EPS growth by clicking on this link.
How Is Dilution Impacting Jinan Shengquan Group Share Holding's Earnings Per Share (EPS)?
Unfortunately, Jinan Shengquan Group Share Holding's profit is down 10% per year over three years. On the bright side, in the last twelve months it grew profit by 12%. On the other hand, earnings per share are only up 12% over the same period. 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 Jinan Shengquan Group Share Holding can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 Jinan Shengquan Group Share Holding's Profit Performance
Jinan Shengquan Group Share 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 Jinan Shengquan Group Share Holding's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 12% EPS growth in the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Jinan Shengquan Group Share Holding.
Today we've zoomed in on a single data point to better understand the nature of Jinan Shengquan Group Share 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 that insiders are buying 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.