Some Investors May Be Willing To Look Past K Laser Technology's (TWSE:2461) Soft Earnings

Soft earnings didn't appear to concern K Laser Technology Inc.'s (TWSE:2461) shareholders over the last week. We did some digging, and we believe the earnings are stronger than they seem.

View our latest analysis for K Laser Technology

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, K Laser Technology increased the number of shares on issue by 7.4% 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 K Laser Technology's historical EPS growth by clicking on this link.

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

Unfortunately, K Laser Technology's profit is down 28% per year over three years. Even looking at the last year, profit was still down 62%. Sadly, earnings per share fell further, down a full 64% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If K Laser Technology'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.

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

The Impact Of Unusual Items On Profit

On top of the dilution, we should also consider the NT$54m impact of unusual items in the last year, which had the effect of suppressing profit. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. K Laser Technology took a rather significant hit from unusual items in the year to December 2023. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Our Take On K Laser Technology's Profit Performance

K Laser Technology suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. But unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Based on these factors, we think that K Laser Technology's profits are a reasonably conservative guide to its underlying profitability. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Case in point: We've spotted 4 warning signs for K Laser Technology you should be mindful of and 1 of these shouldn't be ignored.

Our examination of K Laser Technology has focussed on certain factors that can make its earnings look better than they are. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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.