We Think Nakamoto PacksLtd's (TSE:7811) Robust Earnings Are Conservative

Simply Wall St · 10/15 22:07

Nakamoto Packs Co.,Ltd. (TSE:7811) recently posted some strong earnings, and the market responded positively. Our analysis found some more factors that we think are good for shareholders.

See our latest analysis for Nakamoto PacksLtd

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TSE:7811 Earnings and Revenue History October 15th 2024

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Nakamoto PacksLtd increased the number of shares on issue by 9.1% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. Check out Nakamoto PacksLtd's historical EPS growth by clicking on this link.

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

As you can see above, Nakamoto PacksLtd has been growing its net income over the last few years, with an annualized gain of 8.7% over three years. And the 53% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 46% 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 Nakamoto PacksLtd 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.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Nakamoto PacksLtd's profit suffered from unusual items, which reduced profit by JP¥664m in the last twelve months. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. If Nakamoto PacksLtd doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Nakamoto PacksLtd's Profit Performance

To sum it all up, Nakamoto PacksLtd took a hit from unusual items which pushed its profit down; without that, it would have made more money. 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. After taking into account all these factors, we think that Nakamoto PacksLtd's statutory results are a decent reflection of its underlying earnings power. So while earnings quality is important, it's equally important to consider the risks facing Nakamoto PacksLtd at this point in time. For example - Nakamoto PacksLtd has 3 warning signs we think you should be aware of.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.