Impressive Earnings May Not Tell The Whole Story For Qingdao Huicheng Environmental Technology Group (SZSE:300779)

Despite posting some strong earnings, the market for Qingdao Huicheng Environmental Technology Group Co., Ltd.'s (SZSE:300779) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

Check out our latest analysis for Qingdao Huicheng Environmental Technology Group

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Qingdao Huicheng Environmental Technology Group issued 31% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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 Qingdao Huicheng Environmental Technology Group's historical EPS growth by clicking on this link.

A Look At The Impact Of Qingdao Huicheng Environmental Technology Group's Dilution On Its Earnings Per Share (EPS)

Qingdao Huicheng Environmental Technology Group has improved its profit over the last three years, with an annualized gain of 312% in that time. But EPS was only up 252% per year, in the exact same period. And at a glance the 179% gain in profit over the last year impresses. On the other hand, earnings per share are only up 168% in that time. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So Qingdao Huicheng Environmental Technology Group shareholders will want to see that EPS figure continue to increase. 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 Qingdao Huicheng Environmental Technology Group's Profit Performance

Each Qingdao Huicheng Environmental Technology 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 Qingdao Huicheng Environmental Technology 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. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into Qingdao Huicheng Environmental Technology Group, you'd also look into what risks it is currently facing. When we did our research, we found 2 warning signs for Qingdao Huicheng Environmental Technology Group (1 is a bit unpleasant!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of Qingdao Huicheng Environmental Technology Group's profit. 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. 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.