Investors Shouldn't Be Too Comfortable With AZ-COM MARUWA Holdings' (TSE:9090) Earnings

AZ-COM MARUWA Holdings Inc.'s (TSE:9090) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that shareholders have noticed something concerning in the numbers.

Check out our latest analysis for AZ-COM MARUWA Holdings

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, AZ-COM MARUWA Holdings issued 7.2% more new shares over the last year. That means its earnings are split among 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. Check out AZ-COM MARUWA Holdings' historical EPS growth by clicking on this link.

A Look At The Impact Of AZ-COM MARUWA Holdings' Dilution On Its Earnings Per Share (EPS)

As you can see above, AZ-COM MARUWA Holdings has been growing its net income over the last few years, with an annualized gain of 65% over three years. And in the last year the company managed to bump profit up by 17%. But in comparison, EPS only increased by 15% over the same period. So you can see that the dilution has had a bit of an impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if AZ-COM MARUWA Holdings can grow EPS persistently. 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 AZ-COM MARUWA Holdings' Profit Performance

AZ-COM MARUWA Holdings shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that AZ-COM MARUWA Holdings' statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 63% 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. In terms of investment risks, we've identified 2 warning signs with AZ-COM MARUWA Holdings, and understanding them should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of AZ-COM MARUWA 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.