We Believe Aprogen Healthcare & Games' (KOSDAQ:109960) Earnings Are A Poor Guide For Its Profitability

We didn't see Aprogen Healthcare & Games Inc.'s (KOSDAQ:109960) stock surge when it reported robust earnings recently. We looked deeper into the numbers and found that shareholders might be concerned with some underlying weaknesses.

See our latest analysis for Aprogen Healthcare & Games

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Aprogen Healthcare & Games increased the number of shares on issue by 220% over the last twelve months by issuing new shares. That means its earnings are split among 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. You can see a chart of Aprogen Healthcare & Games' EPS by clicking here.

How Is Dilution Impacting Aprogen Healthcare & Games' Earnings Per Share (EPS)?

Aprogen Healthcare & Games' net profit dropped by 61% per year over the last three years. The good news is that profit was up 77% in the last twelve months. But EPS was less impressive, up only 18% in that time. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Aprogen Healthcare & Games shareholders will want to see that EPS figure continue to increase. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Aprogen Healthcare & Games.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Aprogen Healthcare & Games' profit was boosted by unusual items worth ₩32b in the last twelve months. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. We can see that Aprogen Healthcare & Games' positive unusual items were quite significant relative to its profit in the year to December 2023. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Aprogen Healthcare & Games' Profit Performance

In its last report Aprogen Healthcare & Games benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. 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. For all the reasons mentioned above, we think that, at a glance, Aprogen Healthcare & Games' statutory profits could be considered to be low quality, because they are likely to give investors an overly positive impression of the company. 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. Every company has risks, and we've spotted 3 warning signs for Aprogen Healthcare & Games (of which 1 can't be ignored!) you should know about.

Our examination of Aprogen Healthcare & Games 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 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.