We Think That There Are Issues Underlying Kasumigaseki CapitalLtd's (TSE:3498) Earnings
Kasumigaseki Capital Co.,Ltd. (TSE:3498) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.
To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Kasumigaseki CapitalLtd expanded the number of shares on issue by 21% 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 Kasumigaseki CapitalLtd's EPS by clicking here.
How Is Dilution Impacting Kasumigaseki CapitalLtd's Earnings Per Share (EPS)?
As you can see above, Kasumigaseki CapitalLtd has been growing its net income over the last few years, with an annualized gain of 907% over three years. And the 104% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 284% in that time. So you can see that the dilution has had a bit of an impact on shareholders.
In the long term, earnings per share growth should beget share price growth. So Kasumigaseki CapitalLtd 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.
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 Kasumigaseki CapitalLtd's Profit Performance
Kasumigaseki CapitalLtd 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 Kasumigaseki CapitalLtd'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. If you'd like to know more about Kasumigaseki CapitalLtd as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 3 warning signs for Kasumigaseki CapitalLtd you should be mindful of and 1 of them is significant.
This note has only looked at a single factor that sheds light on the nature of Kasumigaseki CapitalLtd'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 with high insider ownership.
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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.