We Think That There Are More Issues For Impulse (Qingdao) Health TechLtd (SZSE:002899) Than Just Sluggish Earnings

Despite Impulse (Qingdao) Health Tech Co.,Ltd.'s (SZSE:002899) recent earnings report having lackluster headline numbers, the market responded positively. We think that shareholders might be missing some concerning factors that our analysis found.

Check out our latest analysis for Impulse (Qingdao) Health TechLtd

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Impulse (Qingdao) Health TechLtd issued 22% more new shares over the last year. As a result, its net income is now split between a greater number of shares. 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 153% over three years. In comparison, earnings per share only gained 136% over the same period. Net profit actually dropped by 5.4% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 14%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If Impulse (Qingdao) Health TechLtd's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.

The Impact Of Unusual Items On Profit

Finally, we should also consider the fact that unusual items boosted Impulse (Qingdao) Health TechLtd's net profit by CN¥14m over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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

In its last report Impulse (Qingdao) Health TechLtd benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. For the reasons mentioned above, we think that a perfunctory glance at Impulse (Qingdao) Health TechLtd's statutory profits might make it look better than it really is on an underlying level. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Impulse (Qingdao) Health TechLtd.

Our examination of Impulse (Qingdao) Health TechLtd has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. But there are plenty of other ways to inform your opinion of a company. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.