We Think That There Are More Issues For CR Holdings (KRX:000480) Than Just Sluggish Earnings

CR Holdings Co., LTD.'s (KRX:000480) stock wasn't much affected by its recent lackluster earnings numbers. We did some analysis and found some concerning details beneath the statutory profit number.

Check out our latest analysis for CR Holdings

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. CR Holdings expanded the number of shares on issue by 83% over the last year. 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 CR Holdings' historical EPS growth by clicking on this link.

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

Unfortunately, CR Holdings' profit is down 93% per year over three years. Even looking at the last year, profit was still down 91%. Sadly, earnings per share fell further, down a full 95% in that time. So you can see that the dilution has had a fairly significant impact on shareholders.

In the long term, if CR Holdings' earnings per share can increase, then the share price should too. 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 CR Holdings.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that CR Holdings' profit was boosted by unusual items worth ₩6.8b 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'. If CR Holdings doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On CR Holdings' Profit Performance

To sum it all up, CR Holdings got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. Considering all this we'd argue CR Holdings' profits probably give an overly generous impression of its sustainable level of profitability. If you'd like to know more about CR Holdings as a business, it's important to be aware of any risks it's facing. Our analysis shows 6 warning signs for CR Holdings (4 don't sit too well with us!) and we strongly recommend you look at them before investing.

Our examination of CR Holdings has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 with high insider ownership.

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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.