We Think That There Are More Issues For KENT IndustrialLtd (TWSE:6606) Than Just Sluggish Earnings

A lackluster earnings announcement from KENT Industrial Co.,Ltd. (TWSE:6606) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

Check out our latest analysis for KENT IndustrialLtd

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, KENT IndustrialLtd issued 13% more new shares over the last year. That means its earnings are split among 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 KENT IndustrialLtd's historical EPS growth by clicking on this link.

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

KENT IndustrialLtd's net profit dropped by 73% per year over the last three years. Even looking at the last year, profit was still down 29%. Sadly, earnings per share fell further, down a full 36% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if KENT IndustrialLtd's earnings per share can increase, then the share price should too. 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 KENT IndustrialLtd.

Our Take On KENT IndustrialLtd's Profit Performance

Over the last year KENT IndustrialLtd issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that KENT IndustrialLtd's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Our analysis shows 4 warning signs for KENT IndustrialLtd (2 are a bit concerning!) and we strongly recommend you look at these before investing.

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