There May Be Underlying Issues With The Quality Of Oriental Shiraishi's (TSE:1786) Earnings

Last week's profit announcement from Oriental Shiraishi Corporation (TSE:1786) was underwhelming for investors, despite headline numbers being robust. We think that the market might be paying attention to some underlying factors that they find to be concerning.

See our latest analysis for Oriental Shiraishi

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Oriental Shiraishi expanded the number of shares on issue by 14% over the last year. As a result, its net income is now split between a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. Check out Oriental Shiraishi's historical EPS growth by clicking on this link.

A Look At The Impact Of Oriental Shiraishi's Dilution On Its Earnings Per Share (EPS)

Oriental Shiraishi has improved its profit over the last three years, with an annualized gain of 23% in that time. In contrast, earnings per share were actually down by 96% per year, in the exact same period. And in the last year the company managed to bump profit up by 18%. On the other hand, earnings per share are only up 5.7% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Oriental Shiraishi shareholders will want to see that EPS figure continue to increase. 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.

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 Oriental Shiraishi's Profit Performance

Each Oriental Shiraishi 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 Oriental Shiraishi's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 5.7% EPS growth in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. While conducting our analysis, we found that Oriental Shiraishi has 2 warning signs and it would be unwise to ignore them.

This note has only looked at a single factor that sheds light on the nature of Oriental Shiraishi's 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. 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.