Hankyu Hanshin Holdings' (TSE:9042) Shareholders May Want To Dig Deeper Than Statutory Profit

Hankyu Hanshin Holdings, Inc.'s (TSE:9042) robust recent earnings didn't do much to move the stock. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

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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. Hankyu Hanshin Holdings expanded the number of shares on issue by 11% over the last year. 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. Check out Hankyu Hanshin Holdings' historical EPS growth by clicking on this link.

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

As you can see above, Hankyu Hanshin Holdings has been growing its net income over the last few years, with an annualized gain of 215% over three years. However, net income was pretty flat over the last year with a miniscule decrease. Earnings per share are pretty much flat, too over the last twelve months, but EPS growth came in below below net income growth. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If Hankyu Hanshin Holdings' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.

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 Hankyu Hanshin Holdings' Profit Performance

Hankyu Hanshin Holdings issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Hankyu Hanshin Holdings' true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you'd like to know more about Hankyu Hanshin Holdings as a business, it's important to be aware of any risks it's facing. When we did our research, we found 2 warning signs for Hankyu Hanshin Holdings (1 makes us a bit uncomfortable!) that we believe deserve your full attention.

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