Unsurprisingly, Jiangxi Hongcheng Environment Co.,Ltd.'s (SHSE:600461) stock price was strong on the back of its healthy earnings report. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Jiangxi Hongcheng EnvironmentLtd increased the number of shares on issue by 13% over the last twelve months by issuing new shares. 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. You can see a chart of Jiangxi Hongcheng EnvironmentLtd's EPS by clicking here.

How Is Dilution Impacting Jiangxi Hongcheng EnvironmentLtd's Earnings Per Share (EPS)?

Jiangxi Hongcheng EnvironmentLtd has improved its profit over the last three years, with an annualized gain of 63% in that time. In comparison, earnings per share only gained 41% over the same period. And in the last year the company managed to bump profit up by 13%. On the other hand, earnings per share are only up 7.6% 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 Jiangxi Hongcheng EnvironmentLtd 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Jiangxi Hongcheng EnvironmentLtd.

Our Take On Jiangxi Hongcheng EnvironmentLtd's Profit Performance

Each Jiangxi Hongcheng EnvironmentLtd share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Jiangxi Hongcheng EnvironmentLtd's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 41% per annum growth in EPS for the last three. 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. 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 Jiangxi Hongcheng EnvironmentLtd has 3 warning signs and it would be unwise to ignore them.

Today we've zoomed in on a single data point to better understand the nature of Jiangxi Hongcheng EnvironmentLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.