Haohua Chemical Science & Technology Corp., Ltd.'s (SHSE:600378) stock showed strength, with investors undeterred by its weak earnings report. Sometimes, shareholders are willing to ignore soft numbers with the hope that they will improve, but our analysis suggests this is unlikely for Haohua Chemical Science & Technology.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Haohua Chemical Science & Technology issued 22% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. Check out Haohua Chemical Science & Technology's historical EPS growth by clicking on this link.

How Is Dilution Impacting Haohua Chemical Science & Technology's Earnings Per Share (EPS)?

Unfortunately, Haohua Chemical Science & Technology's profit is down 16% per year over three years. Even looking at the last year, profit was still down 51%. Sadly, earnings per share fell further, down a full 44% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If Haohua Chemical Science & Technology's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.

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 Haohua Chemical Science & Technology's Profit Performance

Over the last year Haohua Chemical Science & Technology issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that Haohua Chemical Science & Technology's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. In terms of investment risks, we've identified 2 warning signs with Haohua Chemical Science & Technology, and understanding these should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Haohua Chemical Science & Technology'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 with high insider ownership.

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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.