COSCO SHIPPING Energy Transportation's (HKG:1138) Earnings Are Growing But Is There More To The Story?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. Today we'll focus on whether this year's statutory profits are a good guide to understanding COSCO SHIPPING Energy Transportation (HKG:1138).

While COSCO SHIPPING Energy Transportation was able to generate revenue of CN¥16.6b in the last twelve months, we think its profit result of CN¥3.17b was more important. In the chart below, you can see that its profit and revenue have both grown over the last three years.

View our latest analysis for COSCO SHIPPING Energy Transportation

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. In this article we will consider how COSCO SHIPPING Energy Transportation's decision to issue new shares in the company has impacted returns to shareholders. 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.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, COSCO SHIPPING Energy Transportation issued 18% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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 COSCO SHIPPING Energy Transportation's EPS by clicking here.

A Look At The Impact Of COSCO SHIPPING Energy Transportation's Dilution on Its Earnings Per Share (EPS).

COSCO SHIPPING Energy Transportation has improved its profit over the last three years, with an annualized gain of 231% in that time. But EPS was only up 203% per year, in the exact same period. And the 233% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 205% over the same period. So you can see that the dilution has had a bit of an impact on shareholders. Therefore, the dilution is having a noteworthy influence on shareholder returns. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So COSCO SHIPPING Energy Transportation shareholders will want to see that EPS figure continue to increase. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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.

Our Take On COSCO SHIPPING Energy Transportation's Profit Performance

COSCO SHIPPING Energy Transportation 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 COSCO SHIPPING Energy Transportation'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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. When we did our research, we found 3 warning signs for COSCO SHIPPING Energy Transportation (1 is significant!) that we believe deserve your full attention.

Today we've zoomed in on a single data point to better understand the nature of COSCO SHIPPING Energy Transportation's profit. But there are plenty of other ways to inform your opinion of a company. 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. 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. 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.
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