JMC's (TSE:5704) Shareholders Have More To Worry About Than Only Soft Earnings

The market wasn't impressed with the soft earnings from JMC Corporation (TSE:5704) recently. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

View our latest analysis for JMC

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, JMC increased the number of shares on issue by 5.0% 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. You can see a chart of JMC's EPS by clicking here.

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

JMC was losing money three years ago. And even focusing only on the last twelve months, we see profit is down 30%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 32% in the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If JMC'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 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 JMC.

Our Take On JMC's Profit Performance

Over the last year JMC issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that JMC's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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 JMC as a business, it's important to be aware of any risks it's facing. For example, we've found that JMC has 4 warning signs (1 is concerning!) that deserve your attention before going any further with your analysis.

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