NVH Korea's (KOSDAQ:067570) Earnings Are Weaker Than They Seem

Despite posting some strong earnings, the market for NVH Korea Inc.'s (KOSDAQ:067570) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

Check out our latest analysis for NVH Korea

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, NVH Korea increased the number of shares on issue by 28% over the last twelve months by issuing new shares. As a result, its net income is now split between a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. You can see a chart of NVH Korea's EPS by clicking here.

A Look At The Impact Of NVH Korea's Dilution On Its Earnings Per Share (EPS)

Three years ago, NVH Korea lost money. Zooming in to the last year, we still can't talk about growth rates coherently, since it made a loss last year. But mathematics aside, it is always good to see when a formerly unprofitable business come good (though we accept profit would have been higher if dilution had not been required). Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

In the long term, if NVH Korea's earnings per share can increase, then the share price should too. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of NVH Korea.

Our Take On NVH Korea's Profit Performance

Over the last year NVH Korea issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that NVH Korea's true underlying earnings power is actually less than its statutory profit. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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 NVH Korea at this point in time. Case in point: We've spotted 4 warning signs for NVH Korea you should be mindful of and 2 of these bad boys shouldn't be ignored.

This note has only looked at a single factor that sheds light on the nature of NVH Korea's 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.