Earnings Troubles May Signal Larger Issues for SmecLtd (KOSDAQ:099440) Shareholders

The subdued market reaction suggests that Smec Co.,Ltd's (KOSDAQ:099440) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.

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To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. SmecLtd expanded the number of shares on issue by 75% over the last year. 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. Check out SmecLtd's historical EPS growth by clicking on this link.

How Is Dilution Impacting SmecLtd's Earnings Per Share (EPS)?

Three years ago, SmecLtd lost money. Even looking at the last year, profit was still down 64%. Sadly, earnings per share fell further, down a full 66% in that time. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

In the long term, if SmecLtd'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 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 SmecLtd.

Our Take On SmecLtd's Profit Performance

SmecLtd issued shares during the year, and that means its EPS performance lags its net income growth. As a result, we think it may well be the case that SmecLtd's underlying earnings power is lower than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. When we did our research, we found 3 warning signs for SmecLtd (2 are concerning!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of SmecLtd'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.