SKB Shutters Corporation Berhad's (KLSE:SKBSHUT) Solid Profits Have Weak Fundamentals

SKB Shutters Corporation Berhad's (KLSE:SKBSHUT) stock was strong after they recently reported robust earnings. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

Check out our latest analysis for SKB Shutters Corporation Berhad

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. SKB Shutters Corporation Berhad expanded the number of shares on issue by 6.5% 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. You can see a chart of SKB Shutters Corporation Berhad's EPS by clicking here.

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

As you can see above, SKB Shutters Corporation Berhad has been growing its net income over the last few years, with an annualized gain of 329% over three years. In comparison, earnings per share only gained 297% over the same period. And the 28% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 28% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if SKB Shutters Corporation Berhad can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of SKB Shutters Corporation Berhad.

Our Take On SKB Shutters Corporation Berhad's Profit Performance

SKB Shutters 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 SKB Shutters Corporation Berhad's true underlying earnings power is actually less than its statutory profit. 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 while earnings quality is important, it's equally important to consider the risks facing SKB Shutters Corporation Berhad at this point in time. In terms of investment risks, we've identified 3 warning signs with SKB Shutters Corporation Berhad, and understanding them should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of SKB Shutters Corporation Berhad's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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.