Seojin SystemLtd's (KOSDAQ:178320) Sluggish Earnings Might Be Just The Beginning Of Its Problems

The market wasn't impressed with the soft earnings from Seojin System Co.,Ltd (KOSDAQ:178320) recently. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

See our latest analysis for Seojin SystemLtd

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Seojin SystemLtd issued 27% more new shares over the last year. As a result, its net income is now split between a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a chart of Seojin SystemLtd's EPS by clicking here.

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

Seojin SystemLtd was losing money three years ago. Even looking at the last year, profit was still down 68%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 67% in the same period. So you can see that the dilution has had a fairly significant impact on shareholders.

If Seojin SystemLtd'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 the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

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.

Our Take On Seojin SystemLtd's Profit Performance

Over the last year Seojin SystemLtd issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that Seojin SystemLtd's statutory profits are better than its underlying earnings power. 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. To help with this, we've discovered 3 warning signs (1 is a bit concerning!) that you ought to be aware of before buying any shares in Seojin SystemLtd.

Today we've zoomed in on a single data point to better understand the nature of Seojin SystemLtd'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.