Shanghai Shyndec Pharmaceutical Co., Ltd.'s (SHSE:600420) robust recent earnings didn't do much to move the stock. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Shanghai Shyndec Pharmaceutical issued 14% more new shares 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. You can see a chart of Shanghai Shyndec Pharmaceutical's EPS by clicking here.

A Look At The Impact Of Shanghai Shyndec Pharmaceutical's Dilution On Its Earnings Per Share (EPS)

As you can see above, Shanghai Shyndec Pharmaceutical has been growing its net income over the last few years, with an annualized gain of 6.6% over three years. In contrast, earnings per share were actually down by 14% per year, in the exact same period. And over the last 12 months, the company grew its profit by 10%. But earnings per share are actually down 11%, over the last twelve months. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If Shanghai Shyndec Pharmaceutical's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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 Shanghai Shyndec Pharmaceutical's Profit Performance

Each Shanghai Shyndec Pharmaceutical 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 Shanghai Shyndec Pharmaceutical's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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 Shanghai Shyndec Pharmaceutical as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 2 warning signs for Shanghai Shyndec Pharmaceutical you should know about.

Today we've zoomed in on a single data point to better understand the nature of Shanghai Shyndec Pharmaceutical'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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.