YG-1's (KOSDAQ:019210) Anemic Earnings Might Be Worse Than You Think

The subdued market reaction suggests that YG-1 Co., Ltd.'s (KOSDAQ:019210) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

Check out our latest analysis for YG-1

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, YG-1 increased the number of shares on issue by 9.8% over the last twelve months by issuing new shares. That means its earnings are split among 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 YG-1's EPS by clicking here.

How Is Dilution Impacting YG-1's Earnings Per Share (EPS)?

YG-1 has improved its profit over the last three years, with an annualized gain of 212% in that time. But EPS was only up 188% per year, in the exact same period. Net profit actually dropped by 36% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 39%. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if YG-1's earnings per share can increase, then the share price should too. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of YG-1.

Our Take On YG-1's Profit Performance

Over the last year YG-1 issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that YG-1's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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. If you'd like to know more about YG-1 as a business, it's important to be aware of any risks it's facing. Be aware that YG-1 is showing 4 warning signs in our investment analysis and 1 of those doesn't sit too well with us...

Today we've zoomed in on a single data point to better understand the nature of YG-1'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 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.