CITIC Heavy Industries Co., Ltd.'s (SHSE:601608) robust recent earnings didn't do much to move the stock. We believe that shareholders have noticed some concerning factors beyond the statutory profit 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, CITIC Heavy Industries issued 5.5% more new shares over the last year. As a result, its net income is now split between 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 CITIC Heavy Industries' EPS by clicking here.

How Is Dilution Impacting CITIC Heavy Industries' Earnings Per Share (EPS)?

CITIC Heavy Industries has improved its profit over the last three years, with an annualized gain of 75% in that time. And at a glance the 84% gain in profit over the last year impresses. But in comparison, EPS only increased by 79% over the same period. 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 it will certainly be a positive for shareholders if CITIC Heavy Industries can grow EPS persistently. 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 CITIC Heavy Industries.

The Impact Of Unusual Items On Profit

Finally, we should also consider the fact that unusual items boosted CITIC Heavy Industries' net profit by CN¥89m over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. We can see that CITIC Heavy Industries' positive unusual items were quite significant relative to its profit in the year to September 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On CITIC Heavy Industries' Profit Performance

In its last report CITIC Heavy Industries benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. Considering all this we'd argue CITIC Heavy Industries' profits probably give an overly generous impression of its sustainable level of profitability. If you'd like to know more about CITIC Heavy Industries as a business, it's important to be aware of any risks it's facing. For example - CITIC Heavy Industries has 3 warning signs we think you should be aware of.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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.

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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.