Shanghai MicroPort Endovascular MedTech's (SHSE:688016) Earnings Are Weaker Than They Seem

Shanghai MicroPort Endovascular MedTech Co., Ltd. (SHSE:688016) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

View our latest analysis for Shanghai MicroPort Endovascular MedTech

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Shanghai MicroPort Endovascular MedTech expanded the number of shares on issue by 15% 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. You can see a chart of Shanghai MicroPort Endovascular MedTech's EPS by clicking here.

A Look At The Impact Of Shanghai MicroPort Endovascular MedTech's Dilution On Its Earnings Per Share (EPS)

Shanghai MicroPort Endovascular MedTech has improved its profit over the last three years, with an annualized gain of 129% in that time. And at a glance the 38% gain in profit over the last year impresses. On the other hand, earnings per share are only up 37% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if Shanghai MicroPort Endovascular MedTech can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

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 Shanghai MicroPort Endovascular MedTech's Profit Performance

Each Shanghai MicroPort Endovascular MedTech share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Shanghai MicroPort Endovascular MedTech's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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. If you want to do dive deeper into Shanghai MicroPort Endovascular MedTech, you'd also look into what risks it is currently facing. While conducting our analysis, we found that Shanghai MicroPort Endovascular MedTech has 2 warning signs and it would be unwise to ignore these.

This note has only looked at a single factor that sheds light on the nature of Shanghai MicroPort Endovascular MedTech's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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.