The market shrugged off Beibu Gulf Port Co., Ltd.'s (SZSE:000582) solid earnings report. We did some digging and believe investors may be worried about some underlying factors in the report.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Beibu Gulf Port issued 29% more new shares over the last year. 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 Beibu Gulf Port's EPS by clicking here.

A Look At The Impact Of Beibu Gulf Port's Dilution On Its Earnings Per Share (EPS)

Beibu Gulf Port has improved its profit over the last three years, with an annualized gain of 8.1% in that time. But on the other hand, earnings per share actually fell by 5.4% per year. And over the last 12 months, the company grew its profit by 7.5%. On the other hand, earnings per share are only up 2.0% in that time. So you can see that the dilution has had a fairly significant impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Beibu Gulf Port 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 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 Beibu Gulf Port.

How Do Unusual Items Influence Profit?

Finally, we should also consider the fact that unusual items boosted Beibu Gulf Port's net profit by CN¥184m over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. If Beibu Gulf Port doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Beibu Gulf Port's Profit Performance

To sum it all up, Beibu Gulf Port got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. For the reasons mentioned above, we think that a perfunctory glance at Beibu Gulf Port's statutory profits might make it look better than it really is on an underlying level. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For instance, we've identified 3 warning signs for Beibu Gulf Port (1 is a bit concerning) you should be familiar with.

Our examination of Beibu Gulf Port has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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.