Why Kasen International Holdings' (HKG:496) Shaky Earnings Are Just The Beginning Of Its Problems

The subdued market reaction suggests that Kasen International Holdings Limited's (HKG:496) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.

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To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Kasen International Holdings increased the number of shares on issue by 27% 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. You can see a chart of Kasen International Holdings' EPS by clicking here.

How Is Dilution Impacting Kasen International Holdings' Earnings Per Share (EPS)?

Unfortunately, Kasen International Holdings' profit is down 72% per year over three years. And even focusing only on the last twelve months, we see profit is down 11%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 9.1% in the same period. So you can see that the dilution has had a fairly significant impact on shareholders.

If Kasen International Holdings' 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 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 Kasen International Holdings.

Our Take On Kasen International Holdings' Profit Performance

Kasen International Holdings issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Kasen International Holdings' true underlying earnings power is actually less than its statutory profit. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Case in point: We've spotted 3 warning signs for Kasen International Holdings you should be mindful of and 1 of them is significant.

This note has only looked at a single factor that sheds light on the nature of Kasen International Holdings' profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.