We Think You Should Be Aware Of Some Concerning Factors In YaokoLtd's (TSE:8279) Earnings

Yaoko Co.,Ltd.'s (TSE:8279) robust recent earnings didn't do much to move the stock. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

View our latest analysis for YaokoLtd

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, YaokoLtd issued 5.4% more new shares over the last year. That means its earnings are split among a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. You can see a chart of YaokoLtd's EPS by clicking here.

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

YaokoLtd has improved its profit over the last three years, with an annualized gain of 24% in that time. While we did see a very small increase, net profit was basically flat over the last year. In contrast, earnings per share are actually down a full 2.5%, over the last twelve months. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If YaokoLtd'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 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 YaokoLtd's Profit Performance

Each YaokoLtd share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that YaokoLtd's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 19% per annum growth in EPS for the last three. 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. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of YaokoLtd.

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