The subdued market reaction suggests that Hubei Kailong Chemical Group Co., Ltd.'s (SZSE:002783) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses 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. In fact, Hubei Kailong Chemical Group increased the number of shares on issue by 28% 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 Hubei Kailong Chemical Group's EPS by clicking here.

A Look At The Impact Of Hubei Kailong Chemical Group's Dilution On Its Earnings Per Share (EPS)

Unfortunately, we don't have any visibility into its profits three years back, because we lack the data. And even focusing only on the last twelve months, we see profit is down 19%. Sadly, earnings per share fell further, down a full 28% in that time. So you can see that the dilution has had a fairly significant impact on shareholders.

If Hubei Kailong Chemical Group's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 Hubei Kailong Chemical Group.

Our Take On Hubei Kailong Chemical Group's Profit Performance

Over the last year Hubei Kailong Chemical Group issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that Hubei Kailong Chemical Group'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. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into Hubei Kailong Chemical Group, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 2 warning signs for Hubei Kailong Chemical Group you should know about.

Today we've zoomed in on a single data point to better understand the nature of Hubei Kailong Chemical Group's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 with significant insider holdings to be useful.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.