Groundhog's (TWSE:6906) Weak Earnings May Only Reveal A Part Of The Whole Picture

The subdued market reaction suggests that Groundhog Inc.'s (TWSE:6906) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

See our latest analysis for Groundhog

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Groundhog issued 9.8% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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. You can see a chart of Groundhog's EPS by clicking here.

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

As you can see above, Groundhog has been growing its net income over the last few years, with an annualized gain of 250% over three years. In comparison, earnings per share only gained 178% over the same period. Net income was down 5.4% over the last twelve months. But the EPS result was even worse, with the company recording a decline of 5.4%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if Groundhog's earnings per share can increase, then the share price should too. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

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 Groundhog's Profit Performance

Groundhog issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Groundhog's true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. 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. To help with this, we've discovered 3 warning signs (2 don't sit too well with us!) that you ought to be aware of before buying any shares in Groundhog.

Today we've zoomed in on a single data point to better understand the nature of Groundhog's profit. But there are plenty of other ways to inform your opinion of a company. 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.