KNW's (KOSDAQ:105330) Problems Go Beyond Weak Profit

A lackluster earnings announcement from KNW Co., Ltd. (KOSDAQ:105330) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

Check out our latest analysis for KNW

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, KNW increased the number of shares on issue by 33% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. 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 KNW's historical EPS growth by clicking on this link.

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

KNW was losing money three years ago. And even focusing only on the last twelve months, we see profit is down 85%. Sadly, earnings per share fell further, down a full 87% in that time. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

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

Our Take On KNW's Profit Performance

KNW issued shares during the year, and that means its EPS performance lags its net income growth. As a result, we think it may well be the case that KNW's underlying earnings power is lower than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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. 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. You'd be interested to know, that we found 3 warning signs for KNW and you'll want to know about them.

This note has only looked at a single factor that sheds light on the nature of KNW'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. 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.

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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.