Shanghai MicroPort Endovascular MedTech Co., Ltd. (SHSE:688016) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. However, we think that shareholders may be missing some concerning details in the numbers.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Shanghai MicroPort Endovascular MedTech issued 15% more new shares over the last year. That means its earnings are split among 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 Shanghai MicroPort Endovascular MedTech's EPS by clicking here.

A Look At The Impact Of Shanghai MicroPort Endovascular MedTech's Dilution On Its Earnings Per Share (EPS)

Shanghai MicroPort Endovascular MedTech has improved its profit over the last three years, with an annualized gain of 129% in that time. And the 38% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 37% 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 Shanghai MicroPort Endovascular MedTech can grow EPS persistently. 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 Shanghai MicroPort Endovascular MedTech's Profit Performance

Shanghai MicroPort Endovascular MedTech 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 Shanghai MicroPort Endovascular MedTech's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. While conducting our analysis, we found that Shanghai MicroPort Endovascular MedTech has 2 warning signs and it would be unwise to ignore them.

This note has only looked at a single factor that sheds light on the nature of Shanghai MicroPort Endovascular MedTech's 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.

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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.