There May Be Some Bright Spots In JAKS Resources Berhad's (KLSE:JAKS) Earnings

Shareholders appeared unconcerned with JAKS Resources Berhad's (KLSE:JAKS) lackluster earnings report last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

See our latest analysis for JAKS Resources Berhad

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. JAKS Resources Berhad expanded the number of shares on issue by 10% over the last year. 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 JAKS Resources Berhad's EPS by clicking here.

A Look At The Impact Of JAKS Resources Berhad's Dilution On Its Earnings Per Share (EPS)

Three years ago, JAKS Resources Berhad lost money. Even looking at the last year, profit was still down 60%. Sadly, earnings per share fell further, down a full 65% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if JAKS Resources Berhad's earnings per share can increase, then the share price should too. 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 JAKS Resources Berhad.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that JAKS Resources Berhad's profit suffered from unusual items, which reduced profit by RM24m in the last twelve months. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. In the twelve months to September 2024, JAKS Resources Berhad had a big unusual items expense. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Our Take On JAKS Resources Berhad's Profit Performance

To sum it all up, JAKS Resources Berhad took a hit from unusual items which pushed its profit down; without that, it would have made more money. But unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Considering all the aforementioned, we'd venture that JAKS Resources Berhad's profit result is a pretty good guide to its true profitability, albeit a bit on the conservative side. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Be aware that JAKS Resources Berhad is showing 5 warning signs in our investment analysis and 1 of those shouldn't be ignored...

Our examination of JAKS Resources Berhad has focussed on certain factors that can make its earnings look better than they are. 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. 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 with significant insider holdings 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.