Snowsky Salt Industry Group's (SHSE:600929) Weak Earnings May Only Reveal A Part Of The Whole Picture

The subdued market reaction suggests that Snowsky Salt Industry Group Co., Ltd.'s (SHSE:600929) recent earnings didn't contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.

See our latest analysis for Snowsky Salt Industry Group

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Snowsky Salt Industry Group expanded the number of shares on issue by 13% over the last year. Therefore, each share now receives a smaller portion of profit. 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 Snowsky Salt Industry Group's historical EPS growth by clicking on this link.

A Look At The Impact Of Snowsky Salt Industry Group's Dilution On Its Earnings Per Share (EPS)

As you can see above, Snowsky Salt Industry Group has been growing its net income over the last few years, with an annualized gain of 269% over three years. But EPS was only up 215% per year, in the exact same period. Net profit actually dropped by 7.9% in the last year. But the EPS result was even worse, with the company recording a decline of 17%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If Snowsky Salt Industry Group's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Snowsky Salt Industry Group.

The Impact Of Unusual Items On Profit

Alongside that dilution, it's also important to note that Snowsky Salt Industry Group's profit was boosted by unusual items worth CN¥59m in the last twelve months. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On Snowsky Salt Industry Group's Profit Performance

In its last report Snowsky Salt Industry Group benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. For the reasons mentioned above, we think that a perfunctory glance at Snowsky Salt Industry Group's statutory profits might make it look better than it really is on an underlying level. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. At Simply Wall St, we found 2 warning signs for Snowsky Salt Industry Group and we think they deserve your attention.

Our examination of Snowsky Salt Industry Group 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 are plenty of other ways to inform your opinion of a company. 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. 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.