SK Innovation's (KRX:096770) Weak Earnings May Only Reveal A Part Of The Whole Picture

The subdued market reaction suggests that SK Innovation Co., Ltd.'s (KRX:096770) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.

Check out our latest analysis for SK Innovation

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. SK Innovation expanded the number of shares on issue by 5.7% over the last year. That means its earnings are split among a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. You can see a chart of SK Innovation's EPS by clicking here.

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

Three years ago, SK Innovation lost money. Even looking at the last year, profit was still down 84%. Sadly, earnings per share fell further, down a full 84% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

If SK Innovation's 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 SK Innovation's Profit Performance

SK Innovation issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that SK Innovation's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Case in point: We've spotted 4 warning signs for SK Innovation you should be mindful of and 2 of them can't be ignored.

This note has only looked at a single factor that sheds light on the nature of SK Innovation'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 that insiders are buying.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.