COSCO SHIPPING Ports' (HKG:1199) Profits Appear To Have Quality Issues

COSCO SHIPPING Ports Limited's (HKG:1199) healthy profit numbers didn't contain any surprises for investors. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

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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, COSCO SHIPPING Ports increased the number of shares on issue by 5.5% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. Check out COSCO SHIPPING Ports' historical EPS growth by clicking on this link.

How Is Dilution Impacting COSCO SHIPPING Ports' Earnings Per Share (EPS)?

As you can see above, COSCO SHIPPING Ports' net profit is roughly the same as what it was three years ago. In contrast, its earnings per share is down 12% per year over the same period. The fact that profit was up 12% last year gives a good impression. Then again, EPS was only up 6.4% over that period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So COSCO SHIPPING Ports 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.

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.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that COSCO SHIPPING Ports' profit was boosted by unusual items worth US$30m in the last twelve months. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. If COSCO SHIPPING Ports doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On COSCO SHIPPING Ports' Profit Performance

In its last report COSCO SHIPPING Ports benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. For the reasons mentioned above, we think that a perfunctory glance at COSCO SHIPPING Ports' statutory profits might make it look better than it really is on an underlying level. If you want to do dive deeper into COSCO SHIPPING Ports, you'd also look into what risks it is currently facing. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of COSCO SHIPPING Ports.

Our examination of COSCO SHIPPING Ports has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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. 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.