We Think That There Are More Issues For SUN KWANGLtd (KOSDAQ:003100) Than Just Sluggish Earnings

A lackluster earnings announcement from SUN KWANG CO.,Ltd. (KOSDAQ:003100) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

View our latest analysis for SUN KWANGLtd

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, SUN KWANGLtd increased the number of shares on issue by 8.9% over the last twelve months by issuing new shares. 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 SUN KWANGLtd's historical EPS growth by clicking on this link.

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

As you can see above, SUN KWANGLtd has been growing its net income over the last few years, with an annualized gain of 18% over three years. Net income was down 4.5% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 7.1%. So you can see that the dilution has had a bit of an impact on shareholders.

If SUN KWANGLtd'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 SUN KWANGLtd.

Our Take On SUN KWANGLtd's Profit Performance

SUN KWANGLtd issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that SUN KWANGLtd's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 15% per annum growth in EPS for the last three. 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. If you'd like to know more about SUN KWANGLtd as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 2 warning signs for SUN KWANGLtd and you'll want to know about these.

Today we've zoomed in on a single data point to better understand the nature of SUN KWANGLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.

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.