Why Guizhou TyreLtd's (SZSE:000589) Shaky Earnings Are Just The Beginning Of Its Problems

The market wasn't impressed with the soft earnings from Guizhou Tyre Co.,Ltd. (SZSE:000589) recently. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

See our latest analysis for Guizhou TyreLtd

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Guizhou TyreLtd issued 36% 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 Guizhou TyreLtd's EPS by clicking here.

How Is Dilution Impacting Guizhou TyreLtd's Earnings Per Share (EPS)?

Guizhou TyreLtd's net profit dropped by 22% per year over the last three years. Even looking at the last year, profit was still down 4.5%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 18% in the same period. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

If Guizhou TyreLtd's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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 Guizhou TyreLtd's Profit Performance

Guizhou TyreLtd issued shares during the year, and that means its EPS performance lags its net income growth. For this reason, we think that Guizhou TyreLtd's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. In further bad news, its earnings per share decreased in the last year. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example - Guizhou TyreLtd has 2 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Guizhou TyreLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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.