Shandong Boan Biotechnology's (HKG:6955) Anemic Earnings Might Be Worse Than You Think

Shandong Boan Biotechnology Co., Ltd.'s (HKG:6955) recent weak earnings report didn't cause a big stock movement. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

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In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Shandong Boan Biotechnology increased the number of shares on issue by 16% 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 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 Shandong Boan Biotechnology's historical EPS growth by clicking on this link.

A Look At The Impact Of Shandong Boan Biotechnology's Dilution On Its Earnings Per Share (EPS)

Three years ago, Shandong Boan Biotechnology lost money. Even looking at the last year, profit was still down 48%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 54% in the same period. So you can see that the dilution has had a bit of an impact on shareholders.

If Shandong Boan Biotechnology's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 Shandong Boan Biotechnology's Profit Performance

Shandong Boan Biotechnology issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that Shandong Boan Biotechnology's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. So while earnings quality is important, it's equally important to consider the risks facing Shandong Boan Biotechnology at this point in time. Every company has risks, and we've spotted 3 warning signs for Shandong Boan Biotechnology you should know about.

Today we've zoomed in on a single data point to better understand the nature of Shandong Boan Biotechnology'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 with high insider ownership.

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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.