Ningbo Tuopu GroupLtd's (SHSE:601689) Profits May Not Reveal Underlying Issues

The market for Ningbo Tuopu Group Co.,Ltd.'s (SHSE:601689) stock was strong after it released a healthy earnings report last week. Despite this, our analysis suggests that there are some factors weakening the foundations of those good profit numbers.

See our latest analysis for Ningbo Tuopu GroupLtd

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, Ningbo Tuopu GroupLtd 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. 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 Ningbo Tuopu GroupLtd's historical EPS growth by clicking on this link.

How Is Dilution Impacting Ningbo Tuopu GroupLtd's Earnings Per Share (EPS)?

Ningbo Tuopu GroupLtd has improved its profit over the last three years, with an annualized gain of 208% in that time. In comparison, earnings per share only gained 195% over the same period. And at a glance the 33% gain in profit over the last year impresses. On the other hand, earnings per share are only up 31% 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 Ningbo Tuopu GroupLtd can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

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 Ningbo Tuopu GroupLtd's Profit Performance

Each Ningbo Tuopu GroupLtd 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 Ningbo Tuopu GroupLtd'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. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. While conducting our analysis, we found that Ningbo Tuopu GroupLtd has 2 warning signs and it would be unwise to ignore these.

This note has only looked at a single factor that sheds light on the nature of Ningbo Tuopu GroupLtd'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. 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 that insiders are buying 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.