Jiangxi Huangshanghuang Group Food's (SZSE:002695) Solid Earnings May Rest On Weak Foundations

The recent earnings posted by Jiangxi Huangshanghuang Group Food Co., Ltd. (SZSE:002695) were solid, but the stock didn't move as much as we expected. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

See our latest analysis for Jiangxi Huangshanghuang Group 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, Jiangxi Huangshanghuang Group Food issued 9.5% more new shares over the last year. That means its earnings are split among a greater number of shares. 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 Jiangxi Huangshanghuang Group Food's historical EPS growth by clicking on this link.

How Is Dilution Impacting Jiangxi Huangshanghuang Group Food's Earnings Per Share (EPS)?

Unfortunately, Jiangxi Huangshanghuang Group Food's profit is down 75% per year over three years. On the bright side, in the last twelve months it grew profit by 129%. On the other hand, earnings per share are only up 115% 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 Jiangxi Huangshanghuang Group 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.

The Impact Of Unusual Items On Profit

Finally, we should also consider the fact that unusual items boosted Jiangxi Huangshanghuang Group Food's net profit by CN¥14m over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. Jiangxi Huangshanghuang Group Food had a rather significant contribution from unusual items relative to its profit to December 2023. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Jiangxi Huangshanghuang Group Food's Profit Performance

In its last report Jiangxi Huangshanghuang Group Food benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. For the reasons mentioned above, we think that a perfunctory glance at Jiangxi Huangshanghuang Group Food'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. Case in point: We've spotted 3 warning signs for Jiangxi Huangshanghuang Group Food you should be mindful of and 1 of these bad boys can't be ignored.

Our examination of Jiangxi Huangshanghuang Group Food 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 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.

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.