Sanxiang Advanced Materials Co., Ltd. (SHSE:603663) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

Check out our latest analysis for Sanxiang Advanced Materials

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Sanxiang Advanced Materials increased the number of shares on issue by 12% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. 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 Sanxiang Advanced Materials' historical EPS growth by clicking on this link.

A Look At The Impact Of Sanxiang Advanced Materials' Dilution on Its Earnings Per Share (EPS).

Sanxiang Advanced Materials has improved its profit over the last three years, with an annualized gain of 36% in that time. And at a glance the 55% gain in profit over the last year impresses. But in comparison, EPS only increased by 50% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So Sanxiang Advanced Materials 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Sanxiang Advanced Materials.

Our Take On Sanxiang Advanced Materials' Profit Performance

Each Sanxiang Advanced Materials share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Sanxiang Advanced Materials' statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 31% over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. You'd be interested to know, that we found 3 warning signs for Sanxiang Advanced Materials and you'll want to know about these.

This note has only looked at a single factor that sheds light on the nature of Sanxiang Advanced Materials' 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.