The market for Zhejiang Huilong New Materials Co.,Ltd.'s (SZSE:301057) stock was strong after it released a healthy earnings report last week. Despite this, our analysis suggests that there are some factors weakening the foundations of those good profit numbers.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Zhejiang Huilong New MaterialsLtd increased the number of shares on issue by 6.0% over the last twelve months by issuing new shares. As a result, its net income is now split between a greater number of shares. 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 Zhejiang Huilong New MaterialsLtd's historical EPS growth by clicking on this link.

A Look At The Impact Of Zhejiang Huilong New MaterialsLtd's Dilution On Its Earnings Per Share (EPS)

Unfortunately, Zhejiang Huilong New MaterialsLtd's profit is down 23% per year over three years. The good news is that profit was up 27% in the last twelve months. On the other hand, earnings per share are only up 21% over the same period. 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 it will certainly be a positive for shareholders if Zhejiang Huilong New MaterialsLtd can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 Zhejiang Huilong New MaterialsLtd.

Our Take On Zhejiang Huilong New MaterialsLtd's Profit Performance

Each Zhejiang Huilong New MaterialsLtd 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 Zhejiang Huilong New MaterialsLtd's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 21% EPS growth 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. To help with this, we've discovered 4 warning signs (1 is a bit unpleasant!) that you ought to be aware of before buying any shares in Zhejiang Huilong New MaterialsLtd.

Today we've zoomed in on a single data point to better understand the nature of Zhejiang Huilong New MaterialsLtd'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.