We Think ISC's (KOSDAQ:095340) Profit Is Only A Baseline For What They Can Achieve

When companies post strong earnings, the stock generally performs well, just like ISC Co., Ltd.'s (KOSDAQ:095340) stock has recently. We did some digging and found some further encouraging factors that investors will like.

View our latest analysis for ISC

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, ISC increased the number of shares on issue by 15% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. Check out ISC's historical EPS growth by clicking on this link.

A Look At The Impact Of ISC's Dilution on Its Earnings Per Share (EPS).

ISC's net profit dropped by 65% per year over the last three years. On the bright side, in the last twelve months it grew profit by 42%. On the other hand, earnings per share are only up 43% 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 ISC 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 ISC.

How Do Unusual Items Influence Profit?

On top of the dilution, we should also consider the ₩4.6b impact of unusual items in the last year, which had the effect of suppressing profit. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect ISC to produce a higher profit next year, all else being equal.

Our Take On ISC's Profit Performance

ISC 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 on the other hand, the company issued more shares, so without buying more shares each shareholder will end up with a smaller part of the profit. Given the contrasting considerations, we don't have a strong view as to whether ISC's profits are an apt reflection of its underlying potential for profit. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 4 warning signs for ISC you should be mindful of and 1 of these makes us a bit uncomfortable.

Our examination of ISC 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. 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 that insiders are buying to be useful.

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This article by Simply Wall St is general in nature. 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.
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