We Think That There Are Issues Underlying Impulse (Qingdao) Health TechLtd's (SZSE:002899) Earnings

Impulse (Qingdao) Health Tech Co.,Ltd.'s (SZSE:002899) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

View our latest analysis for Impulse (Qingdao) Health TechLtd

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Impulse (Qingdao) Health TechLtd expanded the number of shares on issue by 23% 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 Impulse (Qingdao) Health TechLtd's EPS by clicking here.

A Look At The Impact Of Impulse (Qingdao) Health TechLtd's Dilution On Its Earnings Per Share (EPS)

As you can see above, Impulse (Qingdao) Health TechLtd has been growing its net income over the last few years, with an annualized gain of 124% over three years. In comparison, earnings per share only gained 113% over the same period. And at a glance the 46% gain in profit over the last year impresses. But in comparison, EPS only increased by 37% over the same period. So you can see that the dilution has had a fairly significant impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Impulse (Qingdao) Health TechLtd shareholders will want to see that EPS figure continue to increase. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Impulse (Qingdao) Health TechLtd.

Our Take On Impulse (Qingdao) Health TechLtd's Profit Performance

Each Impulse (Qingdao) Health TechLtd 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 Impulse (Qingdao) Health TechLtd'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. 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 want to do dive deeper into Impulse (Qingdao) Health TechLtd, you'd also look into what risks it is currently facing. For example - Impulse (Qingdao) Health TechLtd has 1 warning sign we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Impulse (Qingdao) Health TechLtd'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 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.