Weak Statutory Earnings May Not Tell The Whole Story For ikuyoLtd (TSE:7273)

A lackluster earnings announcement from ikuyo Co.,Ltd. (TSE:7273) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

See our latest analysis for ikuyoLtd

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. ikuyoLtd expanded the number of shares on issue by 10% 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 ikuyoLtd's EPS by clicking here.

How Is Dilution Impacting ikuyoLtd's Earnings Per Share (EPS)?

ikuyoLtd was losing money three years ago. But over the last year profit has held pretty steady. Having said that, earnings per share were also flat, but nonetheless grew less than profit. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If ikuyoLtd'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 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 ikuyoLtd.

Our Take On ikuyoLtd's Profit Performance

ikuyoLtd 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 ikuyoLtd's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. If you want to do dive deeper into ikuyoLtd, you'd also look into what risks it is currently facing. Our analysis shows 4 warning signs for ikuyoLtd (1 makes us a bit uncomfortable!) and we strongly recommend you look at these before investing.

Today we've zoomed in on a single data point to better understand the nature of ikuyoLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.

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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.