Solid Earnings May Not Tell The Whole Story For Shanghai Shyndec Pharmaceutical (SHSE:600420)

The recent earnings posted by Shanghai Shyndec Pharmaceutical Co., Ltd. (SHSE:600420) were solid, but the stock didn't move as much as we expected. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

See our latest analysis for Shanghai Shyndec Pharmaceutical

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Shanghai Shyndec Pharmaceutical expanded the number of shares on issue by 14% over the last year. As a result, its net income is now split between a greater number of shares. 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 Shanghai Shyndec Pharmaceutical's EPS by clicking here.

How Is Dilution Impacting Shanghai Shyndec Pharmaceutical's Earnings Per Share (EPS)?

As you can see above, Shanghai Shyndec Pharmaceutical has been growing its net income over the last few years, with an annualized gain of 6.6% over three years. But on the other hand, earnings per share actually fell by 14% per year. And over the last 12 months, the company grew its profit by 10%. But earnings per share are actually down 11%, over the last twelve months. So you can see that the dilution has had a bit of an impact on shareholders.

If Shanghai Shyndec Pharmaceutical'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.

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 Shanghai Shyndec Pharmaceutical's Profit Performance

Shanghai Shyndec Pharmaceutical 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 Shanghai Shyndec Pharmaceutical's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. 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. You'd be interested to know, that we found 2 warning signs for Shanghai Shyndec Pharmaceutical and you'll want to know about these.

Today we've zoomed in on a single data point to better understand the nature of Shanghai Shyndec Pharmaceutical'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.