Investors Shouldn't Be Too Comfortable With Yamaichi Uniheim Real EstateLtd's (TSE:2984) Earnings

Unsurprisingly, Yamaichi Uniheim Real Estate Co.,Ltd's (TSE:2984) 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.

See our latest analysis for Yamaichi Uniheim Real EstateLtd

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Yamaichi Uniheim Real EstateLtd increased the number of shares on issue by 19% over the last twelve months by issuing new shares. 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. You can see a chart of Yamaichi Uniheim Real EstateLtd's EPS by clicking here.

How Is Dilution Impacting Yamaichi Uniheim Real EstateLtd's Earnings Per Share (EPS)?

Yamaichi Uniheim Real EstateLtd has improved its profit over the last three years, with an annualized gain of 19% in that time. But on the other hand, earnings per share actually fell by 19% per year. And the 266% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 237% 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 Yamaichi Uniheim Real EstateLtd shareholders will want to see that EPS figure continue to increase. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Yamaichi Uniheim Real EstateLtd.

Our Take On Yamaichi Uniheim Real EstateLtd's Profit Performance

Yamaichi Uniheim Real EstateLtd 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 Yamaichi Uniheim Real EstateLtd's statutory profits are better than its underlying earnings power. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Be aware that Yamaichi Uniheim Real EstateLtd is showing 4 warning signs in our investment analysis and 2 of those don't sit too well with us...

This note has only looked at a single factor that sheds light on the nature of Yamaichi Uniheim Real EstateLtd's 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. 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.