Supercomnet Technologies Berhad (KLSE:SCOMNET) Is Growing Earnings But Are They A Good Guide?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Supercomnet Technologies Berhad's (KLSE:SCOMNET) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Supercomnet Technologies Berhad made a profit of RM20.3m on revenue of RM122.5m. Happily, it has grown both its profit and revenue over the last three years, as you can see in the chart below.

See our latest analysis for Supercomnet Technologies Berhad

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. In this article we'll look at how Supercomnet Technologies Berhad is impacting shareholders by issuing new shares. 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.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Supercomnet Technologies Berhad increased the number of shares on issue by 5.2% over the last twelve months by issuing new shares. 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. You can see a chart of Supercomnet Technologies Berhad's EPS by clicking here.

A Look At The Impact Of Supercomnet Technologies Berhad's Dilution on Its Earnings Per Share (EPS).

As you can see above, Supercomnet Technologies Berhad has been growing its net income over the last few years, with an annualized gain of 731% over three years. In comparison, earnings per share only gained 206% over the same period. And the 33% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 29% in that time. So you can see that the dilution has had a bit of an impact on shareholders. Therefore, the dilution is having a noteworthy influence on shareholder returns. 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 Supercomnet Technologies 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 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.

Our Take On Supercomnet Technologies Berhad's Profit Performance

Supercomnet Technologies 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 Supercomnet Technologies Berhad's true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate 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. If you want to do dive deeper into Supercomnet Technologies Berhad, you'd also look into what risks it is currently facing. At Simply Wall St, we found 2 warning signs for Supercomnet Technologies Berhad and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Supercomnet Technologies 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 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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