Neosem's (KOSDAQ:253590) Problems Go Beyond Weak Profit

Investors were disappointed by Neosem Inc.'s (KOSDAQ:253590 ) latest earnings release. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

See our latest analysis for Neosem

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Neosem increased the number of shares on issue by 8.4% over the last twelve months by issuing new shares. As a result, its net income is now split between 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. You can see a chart of Neosem's EPS by clicking here.

How Is Dilution Impacting Neosem's Earnings Per Share (EPS)?

Neosem has improved its profit over the last three years, with an annualized gain of 2.6% in that time. But on the other hand, earnings per share actually fell by 1.1% per year. Net income was down 17% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 20%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if Neosem's earnings per share can increase, then the share price should too. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Neosem.

Our Take On Neosem's Profit Performance

Neosem issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that Neosem's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing Neosem at this point in time. Be aware that Neosem is showing 3 warning signs in our investment analysis and 1 of those is a bit concerning...

This note has only looked at a single factor that sheds light on the nature of Neosem's profit. 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.