S Connect's (KOSDAQ:096630) Sluggish Earnings Might Be Just The Beginning Of Its Problems

The subdued market reaction suggests that S Connect Co., LTD.'s (KOSDAQ:096630) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.

View our latest analysis for S Connect

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. S Connect expanded the number of shares on issue by 19% 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. Check out S Connect's historical EPS growth by clicking on this link.

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

S Connect was losing money three years ago. Even looking at the last year, profit was still down 73%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 77% in the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if S Connect'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.

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

Our Take On S Connect's Profit Performance

S Connect issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that S Connect's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. At Simply Wall St, we found 4 warning signs for S Connect and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of S Connect'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.