KBJ (WSE: KBJ) Posted Healthy Gains, But There Are Other Factors To Be Aware Of
KBJ SA (WSE: KBJ) reported strong earnings, but the stock stalled. Our analysis suggests that shareholders have noticed something worrying about the numbers.
Check out our latest review for KBJ
In order to understand the potential for return per share, it is essential to consider the extent to which a company dilutes its shareholders. In this case, KBJ issued 5.9% more new shares compared to last year. As a result, each share now receives a smaller portion of the profits. Celebrating the bottom line while ignoring the dilution is like celebrating because you have only one slice of a bigger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a graph of KBJ’s EPS by clicking here.
A look at the impact of KBJ’s dilution on its earnings per share (EPS).
As you can see above, KBJ has increased its net profit over the past few years, with an annualized gain of 170% over three years. And at a glance, the 196% profit gain over the past year is impressive. On the other hand, income per share are only up 420% during this period. And so, you can see quite clearly that dilution influences shareholder earnings.
Changes in the stock price tend to reflect changes in earnings per share over the long term. So it will certainly be positive for shareholders if KBJ can persistently increase EPS. But on the other hand, we would be a lot less excited to hear that profit (but not EPS) was improving. For this reason, one could argue that EPS is more important than long-term net profit, assuming the goal is to assess whether a company’s stock price might rise.
To note: we always recommend that investors check the strength of their balance sheets. Click here to access our analysis of KBJ’s balance sheet.
Our perspective on KBJ’s earnings performance
Each KBJ share now gets a significantly smaller share of its overall profit, due to the dilution of existing shareholders. For this reason, we believe that KBJ’s statutory profits may be better than its underlying profit power. But the good news is that his BPA growth over the past three years has been very impressive. Ultimately, it is essential to consider more than the above factors if you are to fully understand the business. With that in mind, we wouldn’t consider investing in a stock unless we have a thorough understanding of the risks. For example, we have identified 3 warning signs for KBJ (1 is potentially serious) that you should be aware of.
This memo has considered only one factor that informs the nature of KBJ’s earnings. But there is always more to be discovered if you are able to focus your mind on the minutiae. Some people consider a high return on equity to be a good sign of a quality business. So you might want to see this free collection of companies offering a high return on equity, or that list of stocks bought by insiders.
If you decide to trade KBJ, use the cheapest platform * ranked # 1 overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, currencies, bonds and funds in 135 markets, all from one integrated account.
This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in any of the stocks mentioned.
*Interactive Brokers ranked Least Expensive Broker by StockBrokers.com Annual Online Review 2020
Do you have any comments on this article? Concerned about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.