Qianhe Condiment and Food's (SHSE:603027) Profits May Not Reveal Underlying Issues

Qianhe Condiment and Food Co., Ltd.'s (SHSE:603027 ) stock didn't jump after it announced some healthy earnings. We think that investors might be worried about some concerning underlying factors.

View our latest analysis for Qianhe Condiment and Food

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Qianhe Condiment and Food issued 6.4% more new shares over the last year. That means its earnings are split among 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. Check out Qianhe Condiment and Food's historical EPS growth by clicking on this link.

How Is Dilution Impacting Qianhe Condiment and Food's Earnings Per Share (EPS)?

Qianhe Condiment and Food has improved its profit over the last three years, with an annualized gain of 208% in that time. But EPS was only up 193% per year, in the exact same period. And at a glance the 24% gain in profit over the last year impresses. But in comparison, EPS only increased by 19% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So Qianhe Condiment and Food 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 Qianhe Condiment and Food's Profit Performance

Each Qianhe Condiment and Food share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Qianhe Condiment and Food'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. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we've identified 2 warning signs with Qianhe Condiment and Food, 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 Qianhe Condiment and Food'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.