Weak Statutory Earnings May Not Tell The Whole Story For Guanghui LogisticsLtd (SHSE:600603)

Guanghui Logistics Co.Ltd's (SHSE:600603) recent weak earnings report didn't cause a big stock movement. We think that investors are worried about some weaknesses underlying the earnings.

See our latest analysis for Guanghui LogisticsLtd

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Guanghui LogisticsLtd issued 33% more new shares over the last year. That means its earnings are split among 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. Check out Guanghui LogisticsLtd's historical EPS growth by clicking on this link.

A Look At The Impact Of Guanghui LogisticsLtd's Dilution On Its Earnings Per Share (EPS)

Guanghui LogisticsLtd's net profit dropped by 26% per year over the last three years. Even looking at the last year, profit was still down 5.2%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 3.8% in the same period. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

If Guanghui LogisticsLtd's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 Guanghui LogisticsLtd's Profit Performance

Guanghui LogisticsLtd issued shares during the year, and that means its EPS performance lags its net income growth. For this reason, we think that Guanghui LogisticsLtd's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Sadly, its EPS was down over the last twelve months. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. 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. For example, Guanghui LogisticsLtd has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of Guanghui LogisticsLtd's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.