Supreme Consolidated Resources Berhad's (KLSE:SUPREME) Shareholders May Want To Dig Deeper Than Statutory Profit

The recent earnings posted by Supreme Consolidated Resources Berhad (KLSE:SUPREME) were solid, but the stock didn't move as much as we expected. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

Check out our latest analysis for Supreme Consolidated Resources Berhad

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Supreme Consolidated Resources Berhad expanded the number of shares on issue by 19% over the last year. That means its earnings are split among a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. You can see a chart of Supreme Consolidated Resources Berhad's EPS by clicking here.

A Look At The Impact Of Supreme Consolidated Resources Berhad's Dilution On Its Earnings Per Share (EPS)

As you can see above, Supreme Consolidated Resources Berhad has been growing its net income over the last few years, with an annualized gain of 38% over three years. But EPS was only up 20% per year, in the exact same period. And over the last 12 months, the company grew its profit by 14%. But in comparison, EPS only increased by 9.6% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Supreme Consolidated Resources Berhad shareholders will want to see that EPS figure continue to increase. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Supreme Consolidated Resources Berhad's Profit Performance

Each Supreme Consolidated Resources Berhad share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Supreme Consolidated Resources Berhad's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 20% per annum growth in EPS for the last three. 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 Supreme Consolidated Resources Berhad at this point in time. To help with this, we've discovered 4 warning signs (1 makes us a bit uncomfortable!) that you ought to be aware of before buying any shares in Supreme Consolidated Resources Berhad.

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