Luxchem Corporation Berhad's (KLSE:LUXCHEM) Solid Earnings May Rest On Weak Foundations

The recent earnings posted by Luxchem Corporation Berhad (KLSE:LUXCHEM) were solid, but the stock didn't move as much as we expected. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

See our latest analysis for Luxchem Corporation Berhad

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Luxchem Corporation Berhad expanded the number of shares on issue by 11% over the last year. That means its earnings are split among 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 Luxchem Corporation Berhad's historical EPS growth by clicking on this link.

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

Luxchem Corporation Berhad has improved its profit over the last three years, with an annualized gain of 18% in that time. And at a glance the 27% gain in profit over the last year impresses. On the other hand, earnings per share are only up 25% 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 Luxchem Corporation Berhad shareholders will want to see that EPS figure continue to increase. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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.

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 Luxchem Corporation Berhad's Profit Performance

Luxchem Corporation Berhad shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that Luxchem Corporation Berhad's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 10.0% per annum growth in EPS for the last three. 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. If you'd like to know more about Luxchem Corporation Berhad as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 3 warning signs for Luxchem Corporation Berhad (of which 1 makes us a bit uncomfortable!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Luxchem Corporation 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.

If you’re looking to trade Luxchem Corporation Berhad, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.