Additional Considerations Required While Assessing Xinjiang Tianfu Energy's (SHSE:600509) Strong Earnings

Investors were disappointed with Xinjiang Tianfu Energy Co., Ltd.'s (SHSE:600509) earnings, despite the strong profit numbers. Our analysis uncovered some concerning factors that we believe the market might be paying attention to.

View our latest analysis for Xinjiang Tianfu Energy

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Xinjiang Tianfu Energy increased the number of shares on issue by 20% over the last twelve months by issuing new shares. 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 Xinjiang Tianfu Energy's EPS by clicking here.

How Is Dilution Impacting Xinjiang Tianfu Energy's Earnings Per Share (EPS)?

We don't have any data on the company's profits from three years ago. On the bright side, in the last twelve months it grew profit by 203%. On the other hand, earnings per share are only up 165% over the same period. So you can see that the dilution has had a bit of an impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Xinjiang Tianfu Energy 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 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 Xinjiang Tianfu Energy's Profit Performance

Xinjiang Tianfu Energy shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that Xinjiang Tianfu Energy's true underlying earnings power is actually less than its statutory profit. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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 Xinjiang Tianfu Energy, you'd also look into what risks it is currently facing. For example, Xinjiang Tianfu Energy has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

This note has only looked at a single factor that sheds light on the nature of Xinjiang Tianfu Energy's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.