Additional Considerations Required While Assessing Akatsuki's (TSE:3932) Strong Earnings

Unsurprisingly, Akatsuki Inc.'s (TSE:3932) stock price was strong on the back of its healthy earnings report. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.

Check out our latest analysis for Akatsuki

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Akatsuki increased the number of shares on issue by 25% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. 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 Akatsuki's historical EPS growth by clicking on this link.

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

Unfortunately, Akatsuki's profit is down 66% per year over three years. On the bright side, in the last twelve months it grew profit by 172%. On the other hand, earnings per share are only up 157% over the same period. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Akatsuki can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 Akatsuki's Profit Performance

Each Akatsuki 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 Akatsuki's statutory profits are better than its underlying earnings power. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over 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. If you'd like to know more about Akatsuki as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 1 warning sign for Akatsuki and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Akatsuki's 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. 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.