We Think That There Are Issues Underlying SENKO Group Holdings' (TSE:9069) Earnings

Last week's profit announcement from SENKO Group Holdings Co., Ltd. (TSE:9069) was underwhelming for investors, despite headline numbers being robust. We did some digging and found some worrying underlying problems.

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To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. SENKO Group Holdings expanded the number of shares on issue by 14% over the last year. 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 SENKO Group Holdings' EPS by clicking here.

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

SENKO Group Holdings has improved its profit over the last three years, with an annualized gain of 22% in that time. And over the last 12 months, the company grew its profit by 17%. On the other hand, earnings per share are only up 12% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if SENKO Group Holdings can grow EPS persistently. 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 shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that SENKO Group Holdings' true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 14% per annum growth in EPS for the last three. 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. So while earnings quality is important, it's equally important to consider the risks facing SENKO Group Holdings at this point in time. Every company has risks, and we've spotted 2 warning signs for SENKO Group Holdings (of which 1 shouldn't be ignored!) you should know about.

This note has only looked at a single factor that sheds light on 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.