Haily Group Berhad's (KLSE:HAILY) Promising Earnings May Rest On Soft Foundations

Despite announcing strong earnings, Haily Group Berhad's (KLSE:HAILY) stock was sluggish. We think that the market might be paying attention to some underlying factors that they find to be concerning.

View our latest analysis for Haily Group Berhad

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Haily Group Berhad increased the number of shares on issue by 10.0% over the last twelve months by issuing new shares. 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. You can see a chart of Haily Group Berhad's EPS by clicking here.

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

Haily Group Berhad has improved its profit over the last three years, with an annualized gain of 20% in that time. In comparison, earnings per share only gained 5.7% over the same period. And at a glance the 21% gain in profit over the last year impresses. On the other hand, earnings per share are only up 81% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So Haily Group Berhad shareholders will want to see that EPS figure continue to increase. 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 Haily Group Berhad.

Our Take On Haily Group Berhad's Profit Performance

Each Haily Group Berhad share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Haily Group Berhad's statutory profits are better than its underlying earnings power. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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. 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. Case in point: We've spotted 5 warning signs for Haily Group Berhad you should be mindful of and 1 of them is significant.

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