We Think You Should Be Aware Of Some Concerning Factors In Borneo Oil Berhad's (KLSE:BORNOIL) Earnings

Simply Wall St
September 07, 2021
Source: Shutterstock

The stock price didn't jump after Borneo Oil Berhad (KLSE:BORNOIL) posted decent earnings last week. We did some digging and believe investors may be worried about some underlying factors in the report.

See our latest analysis for Borneo Oil Berhad

KLSE:BORNOIL Earnings and Revenue History September 7th 2021

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Borneo Oil Berhad issued 18% 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. You can see a chart of Borneo Oil Berhad's EPS by clicking here.

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

Borneo Oil Berhad was losing money three years ago. On the bright side, in the last twelve months it grew profit by 1,684%. But EPS was less impressive, up only 1,244% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So Borneo Oil 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 Borneo Oil Berhad.

Our Take On Borneo Oil Berhad's Profit Performance

Borneo Oil Berhad shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Borneo Oil Berhad's statutory profits are better than its underlying earnings power. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over the last year. 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For instance, we've identified 4 warning signs for Borneo Oil Berhad (1 doesn't sit too well with us) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Borneo Oil Berhad's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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