East Asia Holdings Investment (KOSDAQ:900110) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

Despite posting some strong earnings, the market for East Asia Holdings Investment Limited's (KOSDAQ:900110) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

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To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, East Asia Holdings Investment increased the number of shares on issue by 52% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. Check out East Asia Holdings Investment's historical EPS growth by clicking on this link.

A Look At The Impact Of East Asia Holdings Investment's Dilution On Its Earnings Per Share (EPS)

As you can see above, East Asia Holdings Investment has been growing its net income over the last few years, with an annualized gain of 149% over three years. In contrast, earnings per share were actually down by 18% per year, in the exact same period. And at a glance the 48% gain in profit over the last year impresses. On the other hand, earnings per share are only up 8.0% in that time. So you can see that the dilution has had a fairly significant impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if East Asia Holdings Investment can grow EPS persistently. 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 East Asia Holdings Investment.

Our Take On East Asia Holdings Investment's Profit Performance

East Asia Holdings Investment shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. As a result, we think it may well be the case that East Asia Holdings Investment's underlying earnings power is lower than its statutory profit. But at least holders can take some solace from the 8.0% EPS growth in the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 2 warning signs for East Asia Holdings Investment (of which 1 is concerning!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of East Asia Holdings Investment's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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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.