DPS Resources Berhad's (KLSE:DPS) Promising Earnings May Rest On Soft Foundations

DPS Resources Berhad (KLSE:DPS) announced strong profits, but the stock was stagnant. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

Check out our latest analysis for DPS Resources Berhad

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, DPS Resources Berhad issued 78% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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. Check out DPS Resources Berhad's historical EPS growth by clicking on this link.

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

Unfortunately, DPS Resources Berhad's profit is down 52% per year over three years. On the bright side, in the last twelve months it grew profit by 43%. On the other hand, earnings per share are only up 128% over the same period. So you can see that the dilution has had a fairly significant 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 DPS Resources 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.

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

Our Take On DPS Resources Berhad's Profit Performance

DPS Resources Berhad shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. As a result, we think it may well be the case that DPS Resources Berhad's underlying earnings power is lower than its statutory profit. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. To help with this, we've discovered 2 warning signs (1 is concerning!) that you ought to be aware of before buying any shares in DPS Resources Berhad.

Today we've zoomed in on a single data point to better understand the nature of DPS Resources 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.

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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.