Jaeyoung Solutec's (KOSDAQ:049630) Sluggish Earnings Might Be Just The Beginning Of Its Problems

Despite Jaeyoung Solutec Co., Ltd.'s (KOSDAQ:049630) most recent earnings report having soft headline numbers, its stock has had a positive performance. We did some analysis and found some positive factors that investors might be paying attention to rather than profit.

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In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Jaeyoung Solutec expanded the number of shares on issue by 31% over the last year. That means its earnings are split among 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 Jaeyoung Solutec's EPS by clicking here.

A Look At The Impact Of Jaeyoung Solutec's Dilution On Its Earnings Per Share (EPS)

Jaeyoung Solutec was losing money three years ago. And even focusing only on the last twelve months, we see profit is down 36%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 45% in the same period. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

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

The Impact Of Unusual Items On Profit

Alongside that dilution, it's also important to note that Jaeyoung Solutec's profit suffered from unusual items, which reduced profit by ₩785m in the last twelve months. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Jaeyoung Solutec to produce a higher profit next year, all else being equal.

Our Take On Jaeyoung Solutec's Profit Performance

Jaeyoung Solutec 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 unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Having considered these factors, we don't think Jaeyoung Solutec's statutory profits give an overly harsh view of the business. If you want to do dive deeper into Jaeyoung Solutec, you'd also look into what risks it is currently facing. Case in point: We've spotted 4 warning signs for Jaeyoung Solutec you should be mindful of and 3 of these are significant.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.