KC Feed's (KOSDAQ:025880) Profits Appear To Have Quality Issues

Following the solid earnings report from KC Feed Co., Ltd. (KOSDAQ:025880), the market responded by bidding up the stock price. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

See our latest analysis for KC Feed

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, KC Feed increased the number of shares on issue by 84% over the last twelve months by issuing new shares. As a result, its net income is now split between 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. Check out KC Feed's historical EPS growth by clicking on this link.

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

KC Feed has improved its profit over the last three years, with an annualized gain of 70% in that time. And over the last 12 months, the company grew its profit by 3.1%. But in comparison, EPS only increased by 3.1% over the same period. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if KC Feed can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 KC Feed.

Our Take On KC Feed's Profit Performance

KC Feed shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. For this reason, we think that KC Feed's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Nonetheless, it's still worth noting that its earnings per share have grown at 70% over the last three years. 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. If you'd like to know more about KC Feed as a business, it's important to be aware of any risks it's facing. For example, KC Feed has 4 warning signs (and 1 which shouldn't be ignored) we think you should know about.

This note has only looked at a single factor that sheds light on the nature of KC Feed's profit. 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. 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.