We're Not So Sure You Should Rely on ADTechnologyLtd's (KOSDAQ:200710) Statutory Earnings

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. In this article, we'll look at how useful this year's statutory profit is, when analysing ADTechnologyLtd (KOSDAQ:200710).

While ADTechnologyLtd was able to generate revenue of ₩280.0b in the last twelve months, we think its profit result of ₩7.12b was more important. At the risk of seeming quaint, we do like to at least examine profit, even when a stock is improving revenue and considered a 'growth stock'. The good news is that the company managed to grow its revenue over the last three years, and also move from loss-making to profitable.

Check out our latest analysis for ADTechnologyLtd

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. In this article we will consider how ADTechnologyLtd's decision to issue new shares in the company has impacted returns to shareholders. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. ADTechnologyLtd expanded the number of shares on issue by 35% over the last year. That means its earnings are split among 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. You can see a chart of ADTechnologyLtd's EPS by clicking here.

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

ADTechnologyLtd was losing money three years ago. And even focusing only on the last twelve months, we see profit is down 9.2%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 9.2% in the same period. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

If ADTechnologyLtd's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.

Our Take On ADTechnologyLtd's Profit Performance

Over the last year ADTechnologyLtd issued new shares and so, there's a noteworthy divergence between EPS and net income growth. As a result, we think it may well be the case that ADTechnologyLtd's underlying earnings power is lower than its statutory profit. In further bad news, its earnings per share decreased in the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. At Simply Wall St, we found 3 warning signs for ADTechnologyLtd and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of ADTechnologyLtd's profit. 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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