SPSoft (KOSDAQ:443670) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

Despite announcing strong earnings, SPSoft Inc.'s (KOSDAQ:443670) stock was sluggish. We think that the market might be paying attention to some underlying factors that they find to be concerning.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. SPSoft expanded the number of shares on issue by 17% over the last year. Therefore, each share now receives a smaller portion of profit. 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. Check out SPSoft's historical EPS growth by clicking on this link.

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

We don't have any data on the company's profits from three years ago. On the bright side, in the last twelve months it grew profit by 43%. But EPS was less impressive, up only 9.1% in that time. 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 it will certainly be a positive for shareholders if SPSoft 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 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 SPSoft.

Our Take On SPSoft's Profit Performance

SPSoft shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that SPSoft's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 9.1% 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. If you want to do dive deeper into SPSoft, you'd also look into what risks it is currently facing. While conducting our analysis, we found that SPSoft has 2 warning signs and it would be unwise to ignore these.

This note has only looked at a single factor that sheds light on the nature of SPSoft's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.