The recent earnings posted by China Aluminum Cans Holdings Limited (HKG:6898) were solid, but the stock didn't move as much as we expected. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, China Aluminum Cans Holdings increased the number of shares on issue by 5.5% over the last twelve months by issuing new shares. As a result, its net income is now split between 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 China Aluminum Cans Holdings' EPS by clicking here.

How Is Dilution Impacting China Aluminum Cans Holdings' Earnings Per Share (EPS)?

As you can see above, China Aluminum Cans Holdings' net profit is roughly the same as what it was three years ago. In contrast, its earnings per share is down 1.7% per year over the same period. The fact that profit was up 4.6% last year gives a good impression. Then again, EPS was only up 3.8% over that period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if China Aluminum Cans Holdings can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of China Aluminum Cans Holdings.

Our Take On China Aluminum Cans Holdings' Profit Performance

China Aluminum Cans Holdings 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 China Aluminum Cans Holdings' true underlying earnings power is actually less than its statutory profit. The good news is that its earnings per share increased slightly 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 3 warning signs for China Aluminum Cans Holdings (of which 1 is a bit concerning!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of China Aluminum Cans Holdings' 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.