We Think That There Are Some Issues For KBG (KOSDAQ:318000) Beyond Its Promising Earnings

KBG Corp.'s (KOSDAQ:318000) healthy profit numbers didn't contain any surprises for investors. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

See our latest analysis for KBG

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. KBG expanded the number of shares on issue by 5.7% over the last year. As a result, its net income is now split between 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 KBG's historical EPS growth by clicking on this link.

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

As you can see above, KBG has been growing its net income over the last few years, with an annualized gain of 50% over three years. And at a glance the 68% gain in profit over the last year impresses. But in comparison, EPS only increased by 59% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So KBG 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 KBG.

Our Take On KBG's Profit Performance

KBG shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that KBG's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 41% per annum growth in EPS for the last three. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you'd like to know more about KBG as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that KBG has 2 warning signs and it would be unwise to ignore these.

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