MEDIPOST's (KOSDAQ:078160) Attractive Earnings Are Not All Good News For Shareholders

We didn't see MEDIPOST Co., Ltd.'s (KOSDAQ:078160) stock surge when it reported robust earnings recently. We decided to have a deeper look, and we believe that investors might be worried about several concerning factors that we found.

Check out our latest analysis for MEDIPOST

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, MEDIPOST increased the number of shares on issue by 111% over the last twelve months by issuing new shares. As a result, its net income is now split between 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 MEDIPOST's historical EPS growth by clicking on this link.

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

Three years ago, MEDIPOST lost money. On the bright side, in the last twelve months it grew profit by 90%. But EPS was less impressive, up only 51% in that time. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if MEDIPOST 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 MEDIPOST.

The Impact Of Unusual Items On Profit

Alongside that dilution, it's also important to note that MEDIPOST's profit was boosted by unusual items worth ₩5.5b in the last twelve months. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On MEDIPOST's Profit Performance

In its last report MEDIPOST benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. For the reasons mentioned above, we think that a perfunctory glance at MEDIPOST's statutory profits might make it look better than it really is on an underlying level. If you want to do dive deeper into MEDIPOST, you'd also look into what risks it is currently facing. For example, MEDIPOST has 2 warning signs (and 1 which can't be ignored) we think you should know about.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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.