MCE Holdings Berhad's (KLSE:MCEHLDG) Profits May Not Reveal Underlying Issues

The recent earnings posted by MCE Holdings Berhad (KLSE:MCEHLDG) were solid, but the stock didn't move as much as we expected. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

View our latest analysis for MCE Holdings Berhad

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, MCE Holdings Berhad increased the number of shares on issue by 10.0% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. 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. You can see a chart of MCE Holdings Berhad's EPS by clicking here.

How Is Dilution Impacting MCE Holdings Berhad's Earnings Per Share (EPS)?

MCE Holdings Berhad was losing money three years ago. The good news is that profit was up 27% in the last twelve months. On the other hand, earnings per share are only up 19% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So MCE Holdings Berhad shareholders will want to see that EPS figure continue to increase. 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 MCE Holdings Berhad's Profit Performance

MCE Holdings Berhad 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 MCE Holdings Berhad's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 19% EPS growth 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example - MCE Holdings Berhad has 3 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of MCE Holdings Berhad'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.