Weak Statutory Earnings May Not Tell The Whole Story For Shanghai Sunglow Packaging TechnologyLtd (SHSE:603499)

A lackluster earnings announcement from Shanghai Sunglow Packaging Technology Co.,Ltd (SHSE:603499) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

See our latest analysis for Shanghai Sunglow Packaging TechnologyLtd

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Shanghai Sunglow Packaging TechnologyLtd increased the number of shares on issue by 7.4% over the last twelve months by issuing new shares. As a result, its net income is now split between a greater number of shares. 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. Check out Shanghai Sunglow Packaging TechnologyLtd's historical EPS growth by clicking on this link.

A Look At The Impact Of Shanghai Sunglow Packaging TechnologyLtd's Dilution On Its Earnings Per Share (EPS)

As it happens, we don't know how much the company made or lost three years ago, because we don't have the data. And even focusing only on the last twelve months, we see profit is down 47%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 47% in the same period. So you can see that the dilution has had a bit of an impact on shareholders.

If Shanghai Sunglow Packaging TechnologyLtd'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 the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shanghai Sunglow Packaging TechnologyLtd.

Our Take On Shanghai Sunglow Packaging TechnologyLtd's Profit Performance

Shanghai Sunglow Packaging TechnologyLtd 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 Shanghai Sunglow Packaging TechnologyLtd's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Case in point: We've spotted 4 warning signs for Shanghai Sunglow Packaging TechnologyLtd you should be mindful of and 2 of them are significant.

This note has only looked at a single factor that sheds light on the nature of Shanghai Sunglow Packaging TechnologyLtd's profit. 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.