Stock Analysis

There Might Be More To Jilin Aodong Pharmaceutical Group's (SZSE:000623) Story Than Just Weak Earnings

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Jilin Aodong Pharmaceutical Group Co., Ltd.'s (SZSE:000623) stock wasn't much affected by its recent lackluster earnings numbers. We did some analysis and found some concerning details beneath the statutory profit number.

See our latest analysis for Jilin Aodong Pharmaceutical Group

SZSE:000623 Earnings and Revenue History April 23rd 2024

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Jilin Aodong Pharmaceutical Group issued 5.3% more new shares 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 Jilin Aodong Pharmaceutical Group's EPS by clicking here.

How Is Dilution Impacting Jilin Aodong Pharmaceutical Group's Earnings Per Share (EPS)?

Jilin Aodong Pharmaceutical Group's net profit dropped by 15% per year over the last three years. Even looking at the last year, profit was still down 18%. Sadly, earnings per share fell further, down a full 17% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Jilin Aodong Pharmaceutical Group's earnings per share can increase, then the share price should too. 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.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Jilin Aodong Pharmaceutical Group's profit was boosted by unusual items worth CN¥139m 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Jilin Aodong Pharmaceutical Group had a rather significant contribution from unusual items relative to its profit to December 2023. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Jilin Aodong Pharmaceutical Group's Profit Performance

To sum it all up, Jilin Aodong Pharmaceutical Group got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. Considering all this we'd argue Jilin Aodong Pharmaceutical Group's profits probably give an overly generous impression of its sustainable level of profitability. So while earnings quality is important, it's equally important to consider the risks facing Jilin Aodong Pharmaceutical Group at this point in time. For example - Jilin Aodong Pharmaceutical Group has 3 warning signs we think you should be aware of.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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.

Valuation is complex, but we're helping make it simple.

Find out whether Jilin Aodong Pharmaceutical Group is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.