Sichuan Guoguang Agrochemical Co., Ltd. (SZSE:002749) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

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, Sichuan Guoguang Agrochemical issued 7.7% more new shares over the last year. That means its earnings are split among a greater number of shares. 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. Check out Sichuan Guoguang Agrochemical's historical EPS growth by clicking on this link.

How Is Dilution Impacting Sichuan Guoguang Agrochemical's Earnings Per Share (EPS)?

As you can see above, Sichuan Guoguang Agrochemical has been growing its net income over the last few years, with an annualized gain of 113% over three years. And at a glance the 147% gain in profit over the last year impresses. On the other hand, earnings per share are only up 152% in that time. 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 it will certainly be a positive for shareholders if Sichuan Guoguang Agrochemical 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.

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 Guoguang Agrochemical's Profit Performance

Each Sichuan Guoguang Agrochemical share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Sichuan Guoguang Agrochemical's statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. 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. If you want to do dive deeper into Sichuan Guoguang Agrochemical, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 2 warning signs with Sichuan Guoguang Agrochemical, 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 Sichuan Guoguang Agrochemical's profit. 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.