The recent earnings posted by Jiangxi Huangshanghuang Group Food Co., Ltd. (SZSE:002695) 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. As it happens, Jiangxi Huangshanghuang Group Food issued 8.8% more new shares over the last year. That means its earnings are split among a greater number of shares. 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 Huangshanghuang Group Food's EPS by clicking here.

How Is Dilution Impacting Jiangxi Huangshanghuang Group Food's Earnings Per Share (EPS)?

Jiangxi Huangshanghuang Group Food's net profit dropped by 75% per year over the last three years. The good news is that profit was up 129% in the last twelve months. On the other hand, earnings per share are only up 107% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So Jiangxi Huangshanghuang Group Food shareholders will want to see that EPS figure continue to increase. 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.

How Do Unusual Items Influence Profit?

On top of the dilution, we should also consider the CN¥6.7m impact of unusual items in the last year, which had the effect of suppressing profit. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Jiangxi Huangshanghuang Group Food doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Jiangxi Huangshanghuang Group Food's Profit Performance

Jiangxi Huangshanghuang Group Food suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. But unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Based on these factors, it's hard to tell if Jiangxi Huangshanghuang Group Food's profits are a reasonable reflection of its underlying profitability. If you want to do dive deeper into Jiangxi Huangshanghuang Group Food, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 1 warning sign for Jiangxi Huangshanghuang Group Food you should know about.

Our examination of Jiangxi Huangshanghuang Group Food has focussed on certain factors that can make its earnings look better than they are. But there are plenty of other ways to inform your opinion of a company. 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. 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.