Volcano Berhad's (KLSE:VOLCANO) Sluggish Earnings Might Be Just The Beginning Of Its Problems

Investors were disappointed by Volcano Berhad's (KLSE:VOLCANO ) latest earnings release. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

See our latest analysis for Volcano Berhad

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Volcano Berhad issued 10% more new shares over the last year. That means its earnings are split among 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 Volcano Berhad's historical EPS growth by clicking on this link.

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

Unfortunately, Volcano Berhad's profit is down 22% per year over three years. And even focusing only on the last twelve months, we see profit is down 13%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 20% in the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if Volcano Berhad's earnings per share can increase, then the share price should too. 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 Volcano Berhad.

Our Take On Volcano Berhad's Profit Performance

Over the last year Volcano Berhad issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that Volcano Berhad's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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 want to do dive deeper into Volcano Berhad, you'd also look into what risks it is currently facing. At Simply Wall St, we found 2 warning signs for Volcano Berhad and we think they deserve your attention.

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