P&H Tech's (KOSDAQ:239890) Sluggish Earnings Might Be Just The Beginning Of Its Problems

A lackluster earnings announcement from P&H Tech Co., Ltd. (KOSDAQ:239890) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

Check out our latest analysis for P&H Tech

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, P&H Tech issued 7.9% more new shares 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. You can see a chart of P&H Tech's EPS by clicking here.

How Is Dilution Impacting P&H Tech's Earnings Per Share (EPS)?

P&H Tech was losing money three years ago. And even focusing only on the last twelve months, we see profit is down 41%. Sadly, earnings per share fell further, down a full 41% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if P&H Tech's 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.

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.

How Do Unusual Items Influence Profit?

Finally, we should also consider the fact that unusual items boosted P&H Tech's net profit by ₩610m over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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 P&H Tech 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 P&H Tech's Profit Performance

In its last report P&H Tech 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 the reasons mentioned above, we think that a perfunctory glance at P&H Tech's statutory profits might make it look better than it really is on an underlying level. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 3 warning signs for P&H Tech you should be aware of.

Our examination of P&H Tech 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. 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 with significant insider holdings to be useful.

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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.