Kumpulan H & L High-Tech Berhad's (KLSE:HIGHTEC) Promising Earnings May Rest On Soft Foundations

Kumpulan H & L High-Tech Berhad's (KLSE:HIGHTEC) stock was strong after they reported robust earnings. However, we think that shareholders may be missing some concerning details in the numbers.

Check out our latest analysis for Kumpulan H & L High-Tech Berhad

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Kumpulan H & L High-Tech Berhad expanded the number of shares on issue by 5.1% over the last year. As a result, its net income is now split between 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 Kumpulan H & L High-Tech Berhad's historical EPS growth by clicking on this link.

A Look At The Impact Of Kumpulan H & L High-Tech Berhad's Dilution on Its Earnings Per Share (EPS).

As you can see above, Kumpulan H & L High-Tech Berhad has been growing its net income over the last few years, with an annualized gain of 38% over three years. And at a glance the 442% gain in profit over the last year impresses. On the other hand, earnings per share are only up 441% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Kumpulan H & L High-Tech Berhad can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Kumpulan H & L High-Tech Berhad.

Our Take On Kumpulan H & L High-Tech Berhad's Profit Performance

Kumpulan H & L High-Tech 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 Kumpulan H & L High-Tech Berhad's statutory profits are better than its underlying earnings power. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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 instance, we've identified 4 warning signs for Kumpulan H & L High-Tech Berhad (1 can't be ignored) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Kumpulan H & L High-Tech 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 that insiders are buying.

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This article by Simply Wall St is general in nature. 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.
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