Kadokawa's (TSE:9468) Sluggish Earnings Might Be Just The Beginning Of Its Problems

A lackluster earnings announcement from Kadokawa Corporation (TSE:9468) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

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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. As it happens, Kadokawa issued 9.0% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. Check out Kadokawa's historical EPS growth by clicking on this link.

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

Unfortunately, Kadokawa's profit is down 47% per year over three years. Even looking at the last year, profit was still down 35%. Sadly, earnings per share fell further, down a full 35% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If Kadokawa's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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 Kadokawa's Profit Performance

Over the last year Kadokawa issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that Kadokawa's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. If you want to do dive deeper into Kadokawa, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 1 warning sign with Kadokawa, and understanding it should be part of your investment process.

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