Gan & Lee Pharmaceuticals.'s (SHSE:603087) 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.
To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Gan & Lee Pharmaceuticals expanded the number of shares on issue by 5.1% 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 Gan & Lee Pharmaceuticals' historical EPS growth by clicking on this link.
A Look At The Impact Of Gan & Lee Pharmaceuticals' Dilution On Its Earnings Per Share (EPS)
We don't have any data on the company's profits from three years ago. And even focusing only on the last twelve months, we don't have a meaningful growth rate because it made a loss a year ago, too. What we do know is that while it's great to see a profit over the last twelve months, that profit would have been better, on a per share basis, if the company hadn't needed to issue shares. And so, you can see quite clearly that dilution is influencing shareholder earnings.
In the long term, if Gan & Lee Pharmaceuticals' 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 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.
Our Take On Gan & Lee Pharmaceuticals' Profit Performance
Gan & Lee Pharmaceuticals issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Gan & Lee Pharmaceuticals' true underlying earnings power is actually less than its statutory profit. The good news is that it earned a profit in the last twelve months, despite its previous loss. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into Gan & Lee Pharmaceuticals, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for Gan & Lee Pharmaceuticals you should be aware of.
Today we've zoomed in on a single data point to better understand the nature of Gan & Lee Pharmaceuticals' profit. 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. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.