EITA Resources Berhad's (KLSE:EITA) Weak Earnings May Only Reveal A Part Of The Whole Picture

A lackluster earnings announcement from EITA Resources Berhad (KLSE:EITA) 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.

See our latest analysis for EITA Resources Berhad

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, EITA Resources Berhad issued 16% more new shares over the last year. As a result, its net income is now split between a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a chart of EITA Resources Berhad's EPS by clicking here.

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

Unfortunately, EITA Resources Berhad's profit is down 39% per year over three years. Even looking at the last year, profit was still down 44%. Sadly, earnings per share fell further, down a full 44% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If EITA Resources 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 EITA Resources Berhad.

Our Take On EITA Resources Berhad's Profit Performance

EITA Resources Berhad issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that EITA Resources Berhad's statutory profits are better than its underlying earnings power. 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. For example, we've found that EITA Resources Berhad has 5 warning signs (1 is potentially serious!) that deserve your attention before going any further with your analysis.

This note has only looked at a single factor that sheds light on the nature of EITA Resources 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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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.