Sailun Group's (SHSE:601058) Promising Earnings May Rest On Soft Foundations

Despite posting some strong earnings, the market for Sailun Group Co., Ltd.'s (SHSE:601058) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

See our latest analysis for Sailun Group

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Sailun Group issued 7.7% more new shares over the last year. That means its earnings are split among 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 Sailun Group's EPS by clicking here.

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

As you can see above, Sailun Group has been growing its net income over the last few years, with an annualized gain of 133% over three years. In comparison, earnings per share only gained 84% over the same period. And at a glance the 176% gain in profit over the last year impresses. On the other hand, earnings per share are only up 170% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

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 Sailun Group 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.

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 Sailun Group's Profit Performance

Each Sailun Group share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Sailun Group's true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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'd like to know more about Sailun Group as a business, it's important to be aware of any risks it's facing. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Sailun Group.

Today we've zoomed in on a single data point to better understand the nature of Sailun Group'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.