Impressive Earnings May Not Tell The Whole Story For Chongqing Shunbo AluminumLtd (SZSE:002996)

Chongqing Shunbo Aluminum Co.,Ltd. (SZSE:002996) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

View our latest analysis for Chongqing Shunbo AluminumLtd

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Chongqing Shunbo AluminumLtd issued 17% 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 Chongqing Shunbo AluminumLtd's historical EPS growth by clicking on this link.

A Look At The Impact Of Chongqing Shunbo AluminumLtd's Dilution On Its Earnings Per Share (EPS)

Unfortunately, Chongqing Shunbo AluminumLtd's profit is down 53% per year over three years. The good news is that profit was up 98% in the last twelve months. But EPS was less impressive, up only 104% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

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 Chongqing Shunbo AluminumLtd 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 Chongqing Shunbo AluminumLtd.

Our Take On Chongqing Shunbo AluminumLtd's Profit Performance

Each Chongqing Shunbo AluminumLtd share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Chongqing Shunbo AluminumLtd's true underlying earnings power is actually less than its statutory profit. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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 Chongqing Shunbo AluminumLtd at this point in time. For instance, we've identified 4 warning signs for Chongqing Shunbo AluminumLtd (2 can't be ignored) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of Chongqing Shunbo AluminumLtd's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.

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.