SENKO Group Holdings' (TSE:9069) Sluggish Earnings Might Be Just The Beginning Of Its Problems

Investors were disappointed by SENKO Group Holdings Co., Ltd.'s (TSE:9069 ) latest earnings release. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

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To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, SENKO Group Holdings increased the number of shares on issue by 13% 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 SENKO Group Holdings' EPS by clicking here.

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

As you can see above, SENKO Group Holdings has been growing its net income over the last few years, with an annualized gain of 3.6% over three years. But on the other hand, earnings per share actually fell by 8.7% per year. Net profit actually dropped by 4.2% in the last year. But the EPS result was even worse, with the company recording a decline of 14%. So you can see that the dilution has had a bit of an impact on shareholders.

If SENKO Group 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 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.

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 SENKO Group Holdings' Profit Performance

SENKO Group Holdings issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that SENKO Group Holdings' statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. For example, we've found that SENKO Group Holdings has 2 warning signs (1 makes us a bit uncomfortable!) that deserve your attention before going any further with your analysis.

Today we've zoomed in on a single data point to better understand the nature of SENKO Group Holdings' 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. 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.