We Think That There Are Some Issues For Trenders (TSE:6069) Beyond Its Promising Earnings

The market for Trenders, Inc.'s (TSE:6069) stock was strong after it released a healthy earnings report last week. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

Check out our latest analysis for Trenders

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Trenders expanded the number of shares on issue by 7.1% over the last year. 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. You can see a chart of Trenders' EPS by clicking here.

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

As you can see above, Trenders has been growing its net income over the last few years, with an annualized gain of 61% over three years. In comparison, earnings per share only gained 48% over the same period. And the 25% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 17% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Trenders 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 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 Trenders' Profit Performance

Trenders 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 Trenders' statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 48% 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. If you'd like to know more about Trenders as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 3 warning signs for Trenders you should be aware of.

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