Miahelsa Holdings' (TSE:7129) Earnings May Just Be The Starting Point

Miahelsa Holdings Corporation (TSE:7129) just reported healthy earnings but the stock price didn't move much. Investors are probably missing some underlying factors which are encouraging for the future of the company.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Miahelsa Holdings increased the number of shares on issue by 11% 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 Miahelsa Holdings' EPS by clicking here.

How Is Dilution Impacting Miahelsa Holdings' Earnings Per Share (EPS)?

Miahelsa Holdings has improved its profit over the last three years, with an annualized gain of 2.7% in that time. But on the other hand, earnings per share actually fell by 3.1% per year. And the 5,880% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 5,588% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So Miahelsa Holdings shareholders will want to see that EPS figure continue to increase. 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 Miahelsa Holdings.

How Do Unusual Items Influence Profit?

On top of the dilution, we should also consider the JP¥158m impact of unusual items in the last year, which had the effect of suppressing profit. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Miahelsa Holdings to produce a higher profit next year, all else being equal.

Our Take On Miahelsa Holdings' Profit Performance

Miahelsa Holdings suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. But on the other hand, the company issued more shares, so without buying more shares each shareholder will end up with a smaller part of the profit. Based on these factors, it's hard to tell if Miahelsa Holdings' profits are a reasonable reflection of its underlying profitability. So while earnings quality is important, it's equally important to consider the risks facing Miahelsa Holdings at this point in time. While conducting our analysis, we found that Miahelsa Holdings has 2 warning signs and it would be unwise to ignore them.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.