We Think That There Are Issues Underlying Southern Cable Group Berhad's (KLSE:SCGBHD) Earnings

Despite posting some strong earnings, the market for Southern Cable Group Berhad's (KLSE:SCGBHD) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

View our latest analysis for Southern Cable Group Berhad

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Southern Cable Group Berhad expanded the number of shares on issue by 10% 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. Check out Southern Cable Group Berhad's historical EPS growth by clicking on this link.

A Look At The Impact Of Southern Cable Group Berhad's Dilution On Its Earnings Per Share (EPS)

Southern Cable Group Berhad has improved its profit over the last three years, with an annualized gain of 364% in that time. And the 176% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 171% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Southern Cable Group Berhad can grow EPS persistently. 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 Southern Cable Group Berhad's Profit Performance

Each Southern Cable Group Berhad share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Southern Cable Group Berhad's statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 1 warning sign for Southern Cable Group Berhad and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Southern Cable Group 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 with high insider ownership.

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

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.