Kyoritsu Maintenance (TSE:9616) Strong Profits May Be Masking Some Underlying Issues

The market for Kyoritsu Maintenance Co., Ltd.'s (TSE:9616) stock was strong after it released a healthy earnings report last week. Despite this, our analysis suggests that there are some factors weakening the foundations of those good profit numbers.

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One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Kyoritsu Maintenance expanded the number of shares on issue by 11% over the last year. As a result, its net income is now split between 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 Kyoritsu Maintenance's EPS by clicking here.

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

Kyoritsu Maintenance has improved its profit over the last three years, with an annualized gain of 126% in that time. However, net income was pretty flat over the last year with a miniscule increase. While EPS growth was also pretty flat, but no prizes for guessing that it looked worse than the net income. So you can see that the dilution has had a bit of an impact on shareholders.

If Kyoritsu Maintenance's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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 Kyoritsu Maintenance's Profit Performance

Each Kyoritsu Maintenance share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Kyoritsu Maintenance's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. In terms of investment risks, we've identified 1 warning sign with Kyoritsu Maintenance, and understanding it should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Kyoritsu Maintenance's profit. But there are plenty of other ways to inform your opinion of a company. 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.