Earnings Troubles May Signal Larger Issues for Takada (TSE:1966) Shareholders

The subdued market reaction suggests that Takada Corporation's (TSE:1966) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

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In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Takada increased the number of shares on issue by 15% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. 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 Takada's historical EPS growth by clicking on this link.

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

As you can see above, Takada has been growing its net income over the last few years, with an annualized gain of 48% over three years. In comparison, earnings per share only gained 37% over the same period. Net income was down 18% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 24%. So you can see that the dilution has had a bit of an impact on shareholders.

If Takada's 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 that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Takada.

Our Take On Takada's Profit Performance

Over the last year Takada issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that Takada's true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 37% over the last three years. 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. If you'd like to know more about Takada as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 3 warning signs for Takada you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Takada'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. 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.