Zhongman Petroleum and Natural Gas GroupLtd's (SHSE:603619) Earnings Are Of Questionable Quality

Despite posting some strong earnings, the market for Zhongman Petroleum and Natural Gas Group Corp.,Ltd.'s (SHSE:603619) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

View our latest analysis for Zhongman Petroleum and Natural Gas GroupLtd

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Zhongman Petroleum and Natural Gas GroupLtd increased the number of shares on issue by 16% over the last twelve months by issuing new shares. 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 Zhongman Petroleum and Natural Gas GroupLtd's historical EPS growth by clicking on this link.

A Look At The Impact Of Zhongman Petroleum and Natural Gas GroupLtd's Dilution On Its Earnings Per Share (EPS)

Zhongman Petroleum and Natural Gas GroupLtd was losing money three years ago. On the bright side, in the last twelve months it grew profit by 12%. But EPS was less impressive, up only 11% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Zhongman Petroleum and Natural Gas GroupLtd 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 Zhongman Petroleum and Natural Gas GroupLtd's Profit Performance

Each Zhongman Petroleum and Natural Gas GroupLtd share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Zhongman Petroleum and Natural Gas GroupLtd's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 11% in the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing Zhongman Petroleum and Natural Gas GroupLtd at this point in time. In terms of investment risks, we've identified 3 warning signs with Zhongman Petroleum and Natural Gas GroupLtd, and understanding them should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Zhongman Petroleum and Natural Gas GroupLtd'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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.