Earnings Troubles May Signal Larger Issues for EP Manufacturing Bhd (KLSE:EPMB) Shareholders

A lackluster earnings announcement from EP Manufacturing Bhd (KLSE:EPMB) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

View our latest analysis for EP Manufacturing Bhd

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. EP Manufacturing Bhd expanded the number of shares on issue by 30% over the last year. 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. You can see a chart of EP Manufacturing Bhd's EPS by clicking here.

A Look At The Impact Of EP Manufacturing Bhd's Dilution On Its Earnings Per Share (EPS)

Three years ago, EP Manufacturing Bhd lost money. Even looking at the last year, profit was still down 6.9%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 9.3% in the same period. So you can see that the dilution has had a fairly significant impact on shareholders.

In the long term, if EP Manufacturing Bhd's earnings per share can increase, then the share price should too. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of EP Manufacturing Bhd.

Our Take On EP Manufacturing Bhd's Profit Performance

Over the last year EP Manufacturing Bhd issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that EP Manufacturing Bhd's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example - EP Manufacturing Bhd has 2 warning signs we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of EP Manufacturing Bhd'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.