Harbin Jiuzhou Group Co.,Ltd. (SZSE:300040) just released a solid earnings report, and the stock displayed some strength. Despite this, our analysis suggests that there are some factors weakening the foundations of those good profit numbers.

Check out our latest analysis for Harbin Jiuzhou GroupLtd

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Harbin Jiuzhou GroupLtd issued 10% more new shares over the last year. 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. You can see a chart of Harbin Jiuzhou GroupLtd's EPS by clicking here.

A Look At The Impact Of Harbin Jiuzhou GroupLtd's Dilution on Its Earnings Per Share (EPS).

As you can see above, Harbin Jiuzhou GroupLtd has been growing its net income over the last few years, with an annualized gain of 309% over three years. But EPS was only up 246% per year, in the exact same period. And the 121% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 105% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So Harbin Jiuzhou GroupLtd 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.

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 Harbin Jiuzhou GroupLtd's Profit Performance

Harbin Jiuzhou GroupLtd shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that Harbin Jiuzhou GroupLtd'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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example - Harbin Jiuzhou GroupLtd has 3 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Harbin Jiuzhou GroupLtd's profit. But there are plenty of other ways to inform your opinion of a company. 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.