Daqin Railway's (SHSE:601006) Anemic Earnings Might Be Worse Than You Think

The market wasn't impressed with the soft earnings from Daqin Railway Co., Ltd. (SHSE:601006) recently. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

Check out our latest analysis for Daqin Railway

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, Daqin Railway issued 18% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. Check out Daqin Railway's historical EPS growth by clicking on this link.

How Is Dilution Impacting Daqin Railway's Earnings Per Share (EPS)?

Daqin Railway's net profit dropped by 4.5% per year over the last three years. Even looking at the last year, profit was still down 4.7%. Sadly, earnings per share fell further, down a full 9.8% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

If Daqin Railway'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 Daqin Railway's Profit Performance

Over the last year Daqin Railway issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that Daqin Railway's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing Daqin Railway at this point in time. For example - Daqin Railway has 2 warning signs we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Daqin Railway's 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.