Despite posting some strong earnings, the market for Shandong Link Science and Technology Co.,Ltd.'s (SZSE:001207) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Shandong Link Science and TechnologyLtd issued 10% more new shares over the last year. As a result, its net income is now split between a greater number of shares. 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 Shandong Link Science and TechnologyLtd's historical EPS growth by clicking on this link.

A Look At The Impact Of Shandong Link Science and TechnologyLtd's Dilution On Its Earnings Per Share (EPS)

Shandong Link Science and TechnologyLtd has improved its profit over the last three years, with an annualized gain of 42% in that time. In comparison, earnings per share only gained 1.4% over the same period. And the 51% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 44% over the same period. So you can see that the dilution has had a bit of an impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Shandong Link Science and TechnologyLtd shareholders will want to see that EPS figure continue to increase. 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 Shandong Link Science and TechnologyLtd.

Our Take On Shandong Link Science and TechnologyLtd's Profit Performance

Each Shandong Link Science and TechnologyLtd share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Shandong Link Science and TechnologyLtd's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 44% EPS growth in the last year. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Shandong Link Science and TechnologyLtd.

This note has only looked at a single factor that sheds light on the nature of Shandong Link Science and TechnologyLtd'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. 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.