Despite posting some strong earnings, the market for Xingye Alloy Materials Group Limited's (HKG:505) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

View our latest analysis for Xingye Alloy Materials Group

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Xingye Alloy Materials Group issued 9.9% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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 Xingye Alloy Materials Group's historical EPS growth by clicking on this link.

How Is Dilution Impacting Xingye Alloy Materials Group's Earnings Per Share? (EPS)

Xingye Alloy Materials Group has improved its profit over the last three years, with an annualized gain of 905% in that time. And at a glance the 84% gain in profit over the last year impresses. But in comparison, EPS only increased by 77% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So Xingye Alloy Materials Group 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 Xingye Alloy Materials Group.

Our Take On Xingye Alloy Materials Group's Profit Performance

Each Xingye Alloy Materials Group share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Xingye Alloy Materials Group's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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'd like to know more about Xingye Alloy Materials Group as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Xingye Alloy Materials Group, and understanding it should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Xingye Alloy Materials Group's profit. 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 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.