Haohua Chemical Science & Technology's (SHSE:600378) Weak Earnings May Only Reveal A Part Of The Whole Picture

The market rallied behind Haohua Chemical Science & Technology Corp., Ltd.'s (SHSE:600378) stock, leading do a rise in the share price after its recent weak earnings report. Sometimes, shareholders are willing to ignore soft numbers with the hope that they will improve, but our analysis suggests this is unlikely for Haohua Chemical Science & Technology.

Check out our latest analysis for Haohua Chemical Science & Technology

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Haohua Chemical Science & Technology expanded the number of shares on issue by 22% over the last year. Therefore, each share now receives a smaller portion of profit. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. You can see a chart of Haohua Chemical Science & Technology's EPS by clicking here.

How Is Dilution Impacting Haohua Chemical Science & Technology's Earnings Per Share (EPS)?

Unfortunately, Haohua Chemical Science & Technology's profit is down 16% per year over three years. Even looking at the last year, profit was still down 51%. Sadly, earnings per share fell further, down a full 44% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if Haohua Chemical Science & Technology's earnings per share can increase, then the share price should too. 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.

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 Haohua Chemical Science & Technology's Profit Performance

Haohua Chemical Science & Technology issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that Haohua Chemical Science & Technology's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased 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 Haohua Chemical Science & Technology at this point in time. For example - Haohua Chemical Science & Technology has 2 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Haohua Chemical Science & Technology'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 with significant insider holdings 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.