We Think Osung Advanced Materials' (KOSDAQ:052420) Healthy Earnings Might Be Conservative

Osung Advanced Materials Co., Ltd.'s (KOSDAQ:052420) recent earnings report didn't offer any surprises, with the shares unchanged over the last week. Our analysis suggests that shareholders might be missing some positive underlying factors in the earnings report.

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In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Osung Advanced Materials issued 6.9% more new shares 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 Osung Advanced Materials' historical EPS growth by clicking on this link.

How Is Dilution Impacting Osung Advanced Materials' Earnings Per Share (EPS)?

Three years ago, Osung Advanced Materials lost money. On the bright side, in the last twelve months it grew profit by 35%. But EPS was less impressive, up only 30% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if Osung Advanced Materials 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 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 Osung Advanced Materials.

How Do Unusual Items Influence Profit?

On top of the dilution, we should also consider the ₩8.8b impact of unusual items in the last year, which had the effect of suppressing profit. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Osung Advanced Materials doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Osung Advanced Materials' Profit Performance

Osung Advanced Materials suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. But unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Based on these factors, we think that Osung Advanced Materials' profits are a reasonably conservative guide to its underlying profitability. So while earnings quality is important, it's equally important to consider the risks facing Osung Advanced Materials at this point in time. At Simply Wall St, we found 2 warning signs for Osung Advanced Materials and we think they deserve your attention.

Our examination of Osung Advanced Materials has focussed on certain factors that can make its earnings look better than they are. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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.