Concerns Surrounding Suofeiya Home Collection's (SZSE:002572) Performance

Following the solid earnings report from Suofeiya Home Collection Co., Ltd. (SZSE:002572), the market responded by bidding up the stock price. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

Check out our latest analysis for Suofeiya Home Collection

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Suofeiya Home Collection expanded the number of shares on issue by 6.1% over the last year. Therefore, each share now receives a smaller portion of profit. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a chart of Suofeiya Home Collection's EPS by clicking here.

A Look At The Impact Of Suofeiya Home Collection's Dilution On Its Earnings Per Share (EPS)

Suofeiya Home Collection has improved its profit over the last three years, with an annualized gain of 2.4% in that time. But on the other hand, earnings per share actually fell by 0.3% per year. And over the last 12 months, the company grew its profit by 15%. But in comparison, EPS only increased by 12% over the same period. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So Suofeiya Home Collection 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 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 Suofeiya Home Collection's Profit Performance

Each Suofeiya Home Collection 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 Suofeiya Home Collection's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 12% EPS growth in the last year. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 2 warning signs for Suofeiya Home Collection you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Suofeiya Home Collection'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. 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.