Impressive Earnings May Not Tell The Whole Story For DKS (TSE:4461)

DKS Co. Ltd.'s (TSE:4461) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

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In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, DKS increased the number of shares on issue by 11% over the last twelve months by issuing new shares. 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 DKS' EPS by clicking here.

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

We don't have any data on the company's profits from three years ago. On the bright side, in the last twelve months it grew profit by 21%. On the other hand, earnings per share are only up 20% over the same period. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So DKS 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 DKS' Profit Performance

DKS shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that DKS' true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 20% EPS growth in the last year. 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. 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 2 warning signs with DKS, and understanding these should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of DKS' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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.