WZ Satu Berhad (KLSE:WZSATU) Strong Profits May Be Masking Some Underlying Issues

WZ Satu Berhad's (KLSE:WZSATU) robust recent earnings didn't do much to move the stock. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

See our latest analysis for WZ Satu Berhad

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. WZ Satu Berhad expanded the number of shares on issue by 52% over the last year. Therefore, each share now receives a smaller portion of profit. 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 WZ Satu Berhad's EPS by clicking here.

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

Three years ago, WZ Satu Berhad lost money. Zooming in to the last year, we still can't talk about growth rates coherently, since it made a loss last year. What we do know is that while it's great to see a profit over the last twelve months, that profit would have been better, on a per share basis, if the company hadn't needed to issue shares. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

If WZ Satu Berhad's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.

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

Our Take On WZ Satu Berhad's Profit Performance

Over the last year WZ Satu Berhad issued new shares and so, there's a noteworthy divergence between EPS and net income growth. As a result, we think it may well be the case that WZ Satu Berhad's underlying earnings power is lower than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Our analysis shows 2 warning signs for WZ Satu Berhad (1 shouldn't be ignored!) and we strongly recommend you look at these bad boys before investing.

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