China Merchants Shekou Industrial Zone Holdings' (SZSE:001979) Profits May Not Reveal Underlying Issues

China Merchants Shekou Industrial Zone Holdings Co., Ltd.'s (SZSE:001979) robust recent earnings didn't do much to move the stock. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

See our latest analysis for China Merchants Shekou Industrial Zone Holdings

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, China Merchants Shekou Industrial Zone Holdings issued 17% more new shares over the last year. That means its earnings are split among a greater number of shares. 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 China Merchants Shekou Industrial Zone Holdings' historical EPS growth by clicking on this link.

How Is Dilution Impacting China Merchants Shekou Industrial Zone Holdings' Earnings Per Share (EPS)?

China Merchants Shekou Industrial Zone Holdings' net profit dropped by 48% per year over the last three years. On the bright side, in the last twelve months it grew profit by 48%. On the other hand, earnings per share are only up 59% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if China Merchants Shekou Industrial Zone Holdings can grow EPS persistently. 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 China Merchants Shekou Industrial Zone Holdings' Profit Performance

China Merchants Shekou Industrial Zone Holdings 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 China Merchants Shekou Industrial Zone Holdings' statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 59% EPS growth in the last year. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. To that end, you should learn about the 3 warning signs we've spotted with China Merchants Shekou Industrial Zone Holdings (including 1 which can't be ignored).

Today we've zoomed in on a single data point to better understand the nature of China Merchants Shekou Industrial Zone Holdings' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.