We Think That There Are Some Issues For Koa Shoji HoldingsLtd (TSE:9273) Beyond Its Promising Earnings

Koa Shoji Holdings Co.,Ltd.'s (TSE:9273) healthy profit numbers didn't contain any surprises for investors. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

View our latest analysis for Koa Shoji HoldingsLtd

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Koa Shoji HoldingsLtd issued 6.3% more new shares over the last year. 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. You can see a chart of Koa Shoji HoldingsLtd's EPS by clicking here.

How Is Dilution Impacting Koa Shoji HoldingsLtd's Earnings Per Share (EPS)?

As you can see above, Koa Shoji HoldingsLtd has been growing its net income over the last few years, with an annualized gain of 38% over three years. And over the last 12 months, the company grew its profit by 9.6%. On the other hand, earnings per share are only up 9.3% in that time. 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 Koa Shoji HoldingsLtd shareholders will want to see that EPS figure continue to increase. 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 Koa Shoji HoldingsLtd's Profit Performance

Koa Shoji HoldingsLtd shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Koa Shoji HoldingsLtd's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 37% over the last three years. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Case in point: We've spotted 2 warning signs for Koa Shoji HoldingsLtd you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Koa Shoji HoldingsLtd'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.