The recent earnings posted by Sichuan Chuantou Energy Co.Ltd (SHSE:600674) were solid, but the stock didn't move as much as we expected. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.
To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Sichuan Chuantou EnergyLtd increased the number of shares on issue by 9.3% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. 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 Sichuan Chuantou EnergyLtd's EPS by clicking here.
A Look At The Impact Of Sichuan Chuantou EnergyLtd's Dilution On Its Earnings Per Share (EPS)
Sichuan Chuantou EnergyLtd has improved its profit over the last three years, with an annualized gain of 38% in that time. And over the last 12 months, the company grew its profit by 11%. On the other hand, earnings per share are only up 8.2% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.
Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Sichuan Chuantou EnergyLtd shareholders will want to see that EPS figure continue to increase. 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.
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 Sichuan Chuantou EnergyLtd's Profit Performance
Sichuan Chuantou EnergyLtd 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 Sichuan Chuantou EnergyLtd's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 34% per annum growth in EPS for the last three. 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 while earnings quality is important, it's equally important to consider the risks facing Sichuan Chuantou EnergyLtd at this point in time. Every company has risks, and we've spotted 2 warning signs for Sichuan Chuantou EnergyLtd you should know about.
This note has only looked at a single factor that sheds light on the nature of Sichuan Chuantou EnergyLtd's profit. 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. 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.