SAM Engineering & Equipment (M) Berhad's (KLSE:SAM) Earnings Are Of Questionable Quality

Last week's profit announcement from SAM Engineering & Equipment (M) Berhad (KLSE:SAM) was underwhelming for investors, despite headline numbers being robust. Our analysis uncovered some concerning factors that we believe the market might be paying attention to.

See our latest analysis for SAM Engineering & Equipment (M) Berhad

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. SAM Engineering & Equipment (M) Berhad expanded the number of shares on issue by 25% over the last year. Therefore, each share now receives a smaller portion of profit. 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. You can see a chart of SAM Engineering & Equipment (M) Berhad's EPS by clicking here.

A Look At The Impact Of SAM Engineering & Equipment (M) Berhad's Dilution On Its Earnings Per Share (EPS)

As you can see above, SAM Engineering & Equipment (M) Berhad has been growing its net income over the last few years, with an annualized gain of 52% over three years. But EPS was only up 40% per year, in the exact same period. And over the last 12 months, the company grew its profit by 14%. On the other hand, earnings per share are only up 5.0% in that time. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So SAM Engineering & Equipment (M) 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 the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

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 SAM Engineering & Equipment (M) Berhad's Profit Performance

SAM Engineering & Equipment (M) 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 SAM Engineering & Equipment (M) Berhad's true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 40% over the last three years. 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 discovered 1 warning sign that you should run your eye over to get a better picture of SAM Engineering & Equipment (M) Berhad.

Today we've zoomed in on a single data point to better understand the nature of SAM Engineering & Equipment (M) Berhad's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.