Econframe Berhad's (KLSE:EFRAME) Sluggish Earnings Might Be Just The Beginning Of Its Problems

Econframe Berhad's (KLSE:EFRAME) recent weak earnings report didn't cause a big stock movement. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

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To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Econframe Berhad issued 5.3% more new shares 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. Check out Econframe Berhad's historical EPS growth by clicking on this link.

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

As you can see above, Econframe Berhad has been growing its net income over the last few years, with an annualized gain of 13% over three years. In comparison, earnings per share only gained 0.6% over the same period. Net income was down 29% over the last twelve months. But the EPS result was even worse, with the company recording a decline of 33%. So you can see that the dilution has had a bit of an impact on shareholders.

If Econframe Berhad's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Econframe Berhad.

Our Take On Econframe Berhad's Profit Performance

Econframe Berhad issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Econframe Berhad's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 2 warning signs for Econframe Berhad you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Econframe Berhad's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.