Earnings Troubles May Signal Larger Issues for Access Group Holdings (TSE:7042) Shareholders

Access Group Holdings Co., Ltd.'s (TSE:7042) recent weak earnings report didn't cause a big stock movement. We think that investors are worried about some weaknesses underlying the earnings.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Access Group Holdings 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. 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 Access Group Holdings' historical EPS growth by clicking on this link.

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

As you can see above, Access Group Holdings has been growing its net income over the last few years, with an annualized gain of 1,445% over three years. But EPS was only up 1,115% per year, in the exact same period. Net profit actually dropped by 24% in the last year. But the EPS result was even worse, with the company recording a decline of 30%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if Access Group Holdings' 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 the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Access Group Holdings.

Our Take On Access Group Holdings' Profit Performance

Access Group Holdings issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Access Group Holdings' true underlying earnings power is actually less than its statutory profit. 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 while earnings quality is important, it's equally important to consider the risks facing Access Group Holdings at this point in time. Every company has risks, and we've spotted 2 warning signs for Access Group Holdings you should know about.

This note has only looked at a single factor that sheds light on the nature of Access Group Holdings' profit. But there are plenty of other ways to inform your opinion of a company. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.