Earnings Troubles May Signal Larger Issues for Cosel (TSE:6905) Shareholders

Last week's earnings announcement from Cosel Co., Ltd. (TSE:6905) was disappointing to investors, with a sluggish profit figure. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

View our latest analysis for Cosel

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Cosel expanded the number of shares on issue by 24% over the last year. 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. You can see a chart of Cosel's EPS by clicking here.

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

As you can see above, Cosel has been growing its net income over the last few years, with an annualized gain of 161% over three years. In comparison, earnings per share only gained 149% over the same period. Net profit actually dropped by 62% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 65%. So you can see that the dilution has had a fairly significant impact on shareholders.

In the long term, if Cosel's 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.

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 Cosel's Profit Performance

Over the last year Cosel issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that Cosel's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. You'd be interested to know, that we found 3 warning signs for Cosel and you'll want to know about them.

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