JSS' (TSE:6074) Profits Appear To Have Quality Issues

The recent earnings posted by JSS Corporation (TSE:6074) were solid, but the stock didn't move as much as we expected. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

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To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, JSS increased the number of shares on issue by 9.5% over the last twelve months by issuing new shares. As a result, its net income is now split between a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. Check out JSS' historical EPS growth by clicking on this link.

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

As it happens, we don't know how much the company made or lost three years ago, because we don't have the data. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if JSS' 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 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 JSS.

Our Take On JSS' Profit Performance

JSS issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that JSS' true underlying earnings power is actually less than its statutory profit. 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 want to do dive deeper into JSS, you'd also look into what risks it is currently facing. Case in point: We've spotted 2 warning signs for JSS you should be aware of.

This note has only looked at a single factor that sheds light on the nature of JSS' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.