Ultrafabrics HoldingsLtd's (TSE:4235) Shareholders Have More To Worry About Than Only Soft Earnings

The market wasn't impressed with the soft earnings from Ultrafabrics Holdings Co.,Ltd. (TSE:4235) recently. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

See our latest analysis for Ultrafabrics HoldingsLtd

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Ultrafabrics HoldingsLtd issued 13% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. Check out Ultrafabrics HoldingsLtd's historical EPS growth by clicking on this link.

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

Ultrafabrics HoldingsLtd has improved its profit over the last three years, with an annualized gain of 5,077% in that time. In comparison, earnings per share only gained 4,217% over the same period. Net income was down 5.7% over the last twelve months. But the EPS result was even worse, with the company recording a decline of 8.0%. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if Ultrafabrics HoldingsLtd's 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.

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 Ultrafabrics HoldingsLtd's Profit Performance

Ultrafabrics HoldingsLtd issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that Ultrafabrics HoldingsLtd'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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. To help with this, we've discovered 3 warning signs (1 makes us a bit uncomfortable!) that you ought to be aware of before buying any shares in Ultrafabrics HoldingsLtd.

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