We Think That There Are More Issues For Hagiwara Electric Holdings (TSE:7467) Than Just Sluggish Earnings

Investors were disappointed by Hagiwara Electric Holdings Co., Ltd.'s (TSE:7467 ) latest earnings release. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

See our latest analysis for Hagiwara Electric Holdings

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Hagiwara Electric Holdings increased the number of shares on issue by 12% 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 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 Hagiwara Electric Holdings' EPS by clicking here.

How Is Dilution Impacting Hagiwara Electric Holdings' Earnings Per Share (EPS)?

Hagiwara Electric Holdings has improved its profit over the last three years, with an annualized gain of 91% in that time. In comparison, earnings per share only gained 75% over the same period. Net income was down 10.0% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 17%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If Hagiwara Electric Holdings' 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 Hagiwara Electric Holdings' Profit Performance

Over the last year Hagiwara Electric Holdings 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 Hagiwara Electric Holdings' statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. 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. So while earnings quality is important, it's equally important to consider the risks facing Hagiwara Electric Holdings at this point in time. In terms of investment risks, we've identified 2 warning signs with Hagiwara Electric Holdings, and understanding these should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Hagiwara Electric Holdings' profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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.