We Think You Should Be Aware Of Some Concerning Factors In Sichuan Mingxing Electric Power's (SHSE:600101) Earnings

Sichuan Mingxing Electric Power Co., Ltd. (SHSE:600101) just released a solid earnings report, and the stock displayed some strength. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

View our latest analysis for Sichuan Mingxing Electric Power

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Sichuan Mingxing Electric Power issued 30% 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 Sichuan Mingxing Electric Power's historical EPS growth by clicking on this link.

A Look At The Impact Of Sichuan Mingxing Electric Power's Dilution On Its Earnings Per Share (EPS)

As you can see above, Sichuan Mingxing Electric Power has been growing its net income over the last few years, with an annualized gain of 156% over three years. And over the last 12 months, the company grew its profit by 13%. But in comparison, EPS only increased by 13% over the same period. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So Sichuan Mingxing Electric Power shareholders will want to see that EPS figure continue to increase. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Sichuan Mingxing Electric Power.

Our Take On Sichuan Mingxing Electric Power's Profit Performance

Sichuan Mingxing Electric Power 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 Sichuan Mingxing Electric Power's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. If you want to do dive deeper into Sichuan Mingxing Electric Power, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 2 warning signs for Sichuan Mingxing Electric Power you should know about.

This note has only looked at a single factor that sheds light on the nature of Sichuan Mingxing Electric Power'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. 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.