Impressive Earnings May Not Tell The Whole Story For Sajodaerim (KRX:003960)

Sajodaerim Corporation's (KRX:003960) 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.

See our latest analysis for Sajodaerim

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Sajodaerim issued 5.4% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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 Sajodaerim's EPS by clicking here.

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

Sajodaerim has improved its profit over the last three years, with an annualized gain of 170% in that time. And the 28% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 25% in that time. 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 Sajodaerim 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 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 Sajodaerim.

Our Take On Sajodaerim's Profit Performance

Each Sajodaerim share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Sajodaerim's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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 want to do dive deeper into Sajodaerim, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 1 warning sign for Sajodaerim and you'll want to know about it.

Today we've zoomed in on a single data point to better understand the nature of Sajodaerim'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 that insiders are buying 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.