HMMLtd's (KRX:011200) Shareholders Have More To Worry About Than Only Soft Earnings

The market wasn't impressed with the soft earnings from HMM Co.,Ltd (KRX:011200) recently. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

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To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, HMMLtd issued 7.1% more new shares over the last year. That means its earnings are split among 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 HMMLtd's EPS by clicking here.

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

HMMLtd's net profit dropped by 79% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 22%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 42% in the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

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

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 HMMLtd's Profit Performance

HMMLtd issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that HMMLtd's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. To help with this, we've discovered 2 warning signs (1 shouldn't be ignored!) that you ought to be aware of before buying any shares in HMMLtd.

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

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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.