Tantech Holdings' (NASDAQ:TANH) Earnings Quality Is Low
After announcing weak earnings, Tantech Holdings Ltd's (NASDAQ:TANH) stock was strong. Despite the strength in the stock, we feel that investors should be cautious about some numbers in the earnings.
One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Tantech Holdings increased the number of shares on issue by 2,843% over the last twelve months by issuing new shares. That means its earnings are split among 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 Tantech Holdings' historical EPS growth by clicking on this link.
A Look At The Impact Of Tantech Holdings' Dilution On Its Earnings Per Share (EPS)
As you can see above, Tantech Holdings has been growing its net income over the last few years, with an annualized gain of 1,644% over three years. But on the other hand, earnings per share actually fell by 79% per year. Net profit actually dropped by 27% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 92%. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.
In the long term, if Tantech Holdings' earnings per share can increase, then the share price should too. 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 Tantech Holdings.
How Do Unusual Items Influence Profit?
Alongside that dilution, it's also important to note that Tantech Holdings' profit was boosted by unusual items worth US$3.5m in the last twelve months. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. We can see that Tantech Holdings' positive unusual items were quite significant relative to its profit in the year to June 2025. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.
Our Take On Tantech Holdings' Profit Performance
To sum it all up, Tantech Holdings got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. On reflection, the above-mentioned factors give us the strong impression that Tantech Holdings'underlying earnings power is not as good as it might seem, based on the statutory profit numbers. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Be aware that Tantech Holdings is showing 3 warning signs in our investment analysis and 2 of those are concerning...
Our examination of Tantech Holdings has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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 with significant insider holdings 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.