Investors Shouldn't Be Too Comfortable With HD-Hyundai Marine Engine's (KRX:071970) Earnings

HD-Hyundai Marine Engine Co., Ltd.'s (KRX:071970) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

View our latest analysis for HD-Hyundai Marine Engine

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, HD-Hyundai Marine Engine issued 19% more new shares over the last year. As a result, its net income is now split between 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 HD-Hyundai Marine Engine's historical EPS growth by clicking on this link.

How Is Dilution Impacting HD-Hyundai Marine Engine's Earnings Per Share (EPS)?

HD-Hyundai Marine Engine was losing money three years ago. On the bright side, in the last twelve months it grew profit by 582%. On the other hand, earnings per share are only up 560% over the same period. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So HD-Hyundai Marine Engine 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.

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.

The Impact Of Unusual Items On Profit

Alongside that dilution, it's also important to note that HD-Hyundai Marine Engine's profit was boosted by unusual items worth ₩5.5b in the last twelve months. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If HD-Hyundai Marine Engine doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On HD-Hyundai Marine Engine's Profit Performance

To sum it all up, HD-Hyundai Marine Engine got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. For the reasons mentioned above, we think that a perfunctory glance at HD-Hyundai Marine Engine's statutory profits might make it look better than it really is on an underlying level. If you'd like to know more about HD-Hyundai Marine Engine as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 2 warning signs we've spotted with HD-Hyundai Marine Engine (including 1 which can't be ignored).

Our examination of HD-Hyundai Marine Engine has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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.