Shareholders In SewonLtd (KOSDAQ:234100) Should Look Beyond Earnings For The Full Story

Despite posting strong earnings, Sewon Co.,Ltd's (KOSDAQ:234100) stock didn't move much over the last week. We think that investors might be worried about the foundations the earnings are built on.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, SewonLtd increased the number of shares on issue by 21% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. 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 SewonLtd's EPS by clicking here.

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

As you can see above, SewonLtd has been growing its net income over the last few years, with an annualized gain of 13% over three years. But on the other hand, earnings per share actually fell by 34% per year. And the 87% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 77% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So SewonLtd shareholders will want to see that EPS figure continue to increase. 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 SewonLtd.

How Do Unusual Items Influence Profit?

Finally, we should also consider the fact that unusual items boosted SewonLtd's net profit by ₩4.9b over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that SewonLtd's positive unusual items were quite significant relative to its profit in the year to December 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On SewonLtd's Profit Performance

To sum it all up, SewonLtd got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. Considering all this we'd argue SewonLtd's profits probably give an overly generous impression of its sustainable level of profitability. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 4 warning signs for SewonLtd (of which 1 shouldn't be ignored!) you should know about.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.