Nishoku Technology (TWSE:3679) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

Nishoku Technology Inc.'s (TWSE:3679) stock was strong after they recently reported robust earnings. However, we think that shareholders may be missing some concerning details in the numbers.

See our latest analysis for Nishoku Technology

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Nishoku Technology issued 19% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. Check out Nishoku Technology's historical EPS growth by clicking on this link.

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

Nishoku Technology's net profit dropped by 18% per year over the last three years. The good news is that profit was up 27% in the last twelve months. But EPS was less impressive, up only 26% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So Nishoku Technology shareholders will want to see that EPS figure continue to increase. 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.

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

Our Take On Nishoku Technology's Profit Performance

Nishoku Technology shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Nishoku Technology's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 26% in the last year. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Our analysis shows 2 warning signs for Nishoku Technology (1 doesn't sit too well with us!) and we strongly recommend you look at them before investing.

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