A lackluster earnings announcement from Shanghai Sunglow Packaging Technology Co.,Ltd (SHSE:603499) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.
In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Shanghai Sunglow Packaging TechnologyLtd increased the number of shares on issue by 7.4% 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 Shanghai Sunglow Packaging TechnologyLtd's EPS by clicking here.
A Look At The Impact Of Shanghai Sunglow Packaging TechnologyLtd's Dilution On Its Earnings Per Share (EPS)
As it happens, we don't know how much the company made or lost three years ago, because we don't have the data. And even focusing only on the last twelve months, we see profit is down 47%. Sadly, earnings per share fell further, down a full 47% in that time. So you can see that the dilution has had a bit of an impact on shareholders.
If Shanghai Sunglow Packaging TechnologyLtd'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 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 Shanghai Sunglow Packaging TechnologyLtd.
Our Take On Shanghai Sunglow Packaging TechnologyLtd's Profit Performance
Shanghai Sunglow Packaging TechnologyLtd issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Shanghai Sunglow Packaging TechnologyLtd's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you'd like to know more about Shanghai Sunglow Packaging TechnologyLtd as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 4 warning signs we've spotted with Shanghai Sunglow Packaging TechnologyLtd (including 2 which make us uncomfortable).
This note has only looked at a single factor that sheds light on the nature of Shanghai Sunglow Packaging 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. 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.