The subdued market reaction suggests that Do-Fluoride New Materials Co., Ltd.'s (SZSE:002407) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.
One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Do-Fluoride New Materials expanded the number of shares on issue by 12% over the last year. As a result, its net income is now split between 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 Do-Fluoride New Materials' historical EPS growth by clicking on this link.
A Look At The Impact Of Do-Fluoride New Materials' Dilution On Its Earnings Per Share (EPS)
As you can see above, Do-Fluoride New Materials has been growing its net income over the last few years, with an annualized gain of 949% over three years. In comparison, earnings per share only gained 820% over the same period. Net income was down 74% over the last twelve months. But the EPS result was even worse, with the company recording a decline of 75%. So you can see that the dilution has had a bit of an impact on shareholders.
If Do-Fluoride New Materials' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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 Do-Fluoride New Materials' Profit Performance
Do-Fluoride New Materials issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that Do-Fluoride New Materials' statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've discovered 3 warning signs that you should run your eye over to get a better picture of Do-Fluoride New Materials.
This note has only looked at a single factor that sheds light on the nature of Do-Fluoride New Materials' 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.