Concerns Surrounding Guangzhou Jointas Chemical's (SZSE:002909) Performance

Guangzhou Jointas Chemical Co., Ltd.'s (SZSE:002909 ) stock didn't jump after it announced some healthy earnings. We think that investors might be worried about some concerning underlying factors.

Check out our latest analysis for Guangzhou Jointas Chemical

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Guangzhou Jointas Chemical expanded the number of shares on issue by 7.1% 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. Check out Guangzhou Jointas Chemical's historical EPS growth by clicking on this link.

A Look At The Impact Of Guangzhou Jointas Chemical's Dilution On Its Earnings Per Share (EPS)

Guangzhou Jointas Chemical's net profit dropped by 91% per year over the last three years. However, profit was steady in the last year. Having said that, earnings per share were also flat, but nonetheless grew less than profit. So you can see that the dilution has had a bit of an impact on shareholders.

If Guangzhou Jointas Chemical'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 Guangzhou Jointas Chemical.

Our Take On Guangzhou Jointas Chemical's Profit Performance

Guangzhou Jointas Chemical shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Guangzhou Jointas Chemical's statutory profits are better than its underlying earnings power. 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. If you'd like to know more about Guangzhou Jointas Chemical as a business, it's important to be aware of any risks it's facing. For example, we've found that Guangzhou Jointas Chemical has 4 warning signs (2 don't sit too well with us!) that deserve your attention before going any further with your analysis.

This note has only looked at a single factor that sheds light on the nature of Guangzhou Jointas Chemical'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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.