SEEDLtd's (TSE:7743) Solid Profits Have Weak Fundamentals

Despite posting some strong earnings, the market for SEED Co.,Ltd.'s (TSE:7743) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

View our latest analysis for SEEDLtd

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, SEEDLtd increased the number of shares on issue by 21% over the last twelve months by issuing new shares. 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. Check out SEEDLtd's historical EPS growth by clicking on this link.

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

SEEDLtd has improved its profit over the last three years, with an annualized gain of 40% in that time. But EPS was only up 25% per year, in the exact same period. And at a glance the 347% gain in profit over the last year impresses. On the other hand, earnings per share are only up 300% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So SEEDLtd 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 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.

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 SEEDLtd's Profit Performance

Each SEEDLtd 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 SEEDLtd's statutory profits are better than its underlying earnings power. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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. If you'd like to know more about SEEDLtd as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that SEEDLtd has 4 warning signs and it would be unwise to ignore them.

Today we've zoomed in on a single data point to better understand the nature of SEEDLtd's 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. 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.