We Think That There Are More Issues For Do-Fluoride New Materials (SZSE:002407) Than Just Sluggish Earnings

The subdued market reaction suggests that Do-Fluoride New Materials Co., Ltd.'s (SZSE:002407) recent earnings didn't contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.

Check out our latest analysis for Do-Fluoride New Materials

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Do-Fluoride New Materials increased the number of shares on issue by 12% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. 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. You can see a chart of Do-Fluoride New Materials' EPS by clicking here.

How Is Dilution Impacting Do-Fluoride New Materials' Earnings Per Share (EPS)?

Do-Fluoride New Materials has improved its profit over the last three years, with an annualized gain of 949% in that time. In comparison, earnings per share only gained 820% over the same period. Net income was down 74% over the last twelve months. But the EPS result was even worse, with the company recording a decline of 75%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If Do-Fluoride New Materials' 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.

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 Do-Fluoride New Materials' Profit Performance

Do-Fluoride New Materials issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Do-Fluoride New Materials' 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. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. You'd be interested to know, that we found 3 warning signs for Do-Fluoride New Materials and you'll want to know about these.

Today we've zoomed in on a single data point to better understand the nature of Do-Fluoride New Materials' 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. 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.