Stock Analysis

Why Shirai Electronics Industrial's (TSE:6658) Shaky Earnings Are Just The Beginning Of Its Problems

TSE:6658
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The market rallied behind Shirai Electronics Industrial Co., Ltd.'s (TSE:6658) stock, leading do a rise in the share price after its recent weak earnings report. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.

View our latest analysis for Shirai Electronics Industrial

earnings-and-revenue-history
TSE:6658 Earnings and Revenue History November 20th 2024

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Shirai Electronics Industrial increased the number of shares on issue by 6.0% 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. You can see a chart of Shirai Electronics Industrial's EPS by clicking here.

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

As you can see above, Shirai Electronics Industrial has been growing its net income over the last few years, with an annualized gain of 73% over three years. Net income was down 14% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 19%. So you can see that the dilution has had a bit of an impact on shareholders.

If Shirai Electronics Industrial'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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shirai Electronics Industrial.

Our Take On Shirai Electronics Industrial's Profit Performance

Shirai Electronics Industrial issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Shirai Electronics Industrial's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 64% per annum growth in EPS for the last three. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. At Simply Wall St, we found 3 warning signs for Shirai Electronics Industrial and we think they deserve your attention.

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

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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.