JS' (KRX:194370) Anemic Earnings Might Be Worse Than You Think

The subdued market reaction suggests that JS Corporation's (KRX:194370) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.

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One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, JS issued 6.6% more new shares over the last year. 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. Check out JS' historical EPS growth by clicking on this link.

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

As you can see above, JS has been growing its net income over the last few years, with an annualized gain of 102% over three years. But EPS was only up 90% per year, in the exact same period. Net income was down 11% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 15%. So you can see that the dilution has had a bit of an impact on shareholders.

If JS' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.

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.

Our Take On JS' Profit Performance

JS issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that JS' statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. 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. To help with this, we've discovered 3 warning signs (1 doesn't sit too well with us!) that you ought to be aware of before buying any shares in JS.

This note has only looked at a single factor that sheds light on the nature of JS' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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.