KBJ (WSE:KBJ) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

By
Simply Wall St
Published
May 24, 2021
WSE:KBJ
Source: Shutterstock

KBJ S.A. (WSE:KBJ) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

View our latest analysis for KBJ

earnings-and-revenue-history
WSE:KBJ Earnings and Revenue History May 25th 2021

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, KBJ issued 5.9% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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 KBJ's EPS by clicking here.

A Look At The Impact Of KBJ's Dilution on Its Earnings Per Share (EPS).

As you can see above, KBJ has been growing its net income over the last few years, with an annualized gain of 170% over three years. And at a glance the 196% gain in profit over the last year impresses. On the other hand, earnings per share are only up 420% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if KBJ can grow EPS persistently. 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 KBJ.

Our Take On KBJ's Profit Performance

Each KBJ share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that KBJ's statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For instance, we've identified 3 warning signs for KBJ (1 is potentially serious) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of KBJ'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 that insiders are buying.

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