Tantech Holdings' (NASDAQ:TANH) Profits Appear To Have Quality Issues

Tantech Holdings Ltd's (NASDAQ:TANH ) stock didn't jump after it announced some healthy earnings. We think that investors might be worried about some concerning underlying factors.

Check out our latest analysis for Tantech Holdings

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Tantech Holdings expanded the number of shares on issue by 183% over the last year. That means its earnings are split among 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. You can see a chart of Tantech Holdings' EPS by clicking here.

How Is Dilution Impacting Tantech Holdings' Earnings Per Share (EPS)?

Tantech Holdings was losing money three years ago. On the bright side, in the last twelve months it grew profit by 841%. On the other hand, earnings per share are only up 190% over the same period. So you can see that the dilution has had a fairly significant impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Tantech Holdings 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Tantech Holdings.

Our Take On Tantech Holdings' Profit Performance

As we discussed above, Tantech Holdings' dilution over the last year has a major impact on its per-share earnings. As a result, we think it may well be the case that Tantech Holdings' underlying earnings power is lower than its statutory profit. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. You'd be interested to know, that we found 4 warning signs for Tantech Holdings and you'll want to know about them.

Today we've zoomed in on a single data point to better understand the nature of Tantech Holdings' 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.