Additional Considerations Required While Assessing Only World Group Holdings Berhad's (KLSE:OWG) Strong Earnings

Despite posting some strong earnings, the market for Only World Group Holdings Berhad's (KLSE:OWG) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

View our latest analysis for Only World Group Holdings Berhad

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Only World Group Holdings Berhad issued 6.5% more new shares over the last year. As a result, its net income is now split between 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. Check out Only World Group Holdings Berhad's historical EPS growth by clicking on this link.

A Look At The Impact Of Only World Group Holdings Berhad's Dilution On Its Earnings Per Share (EPS)

Only World Group Holdings Berhad was losing money three years ago. And even focusing only on the last twelve months, we don't have a meaningful growth rate because it made a loss a year ago, too. 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. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Only World Group Holdings Berhad's earnings per share can increase, then the share price should too. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Only World Group Holdings Berhad.

Our Take On Only World Group Holdings Berhad's Profit Performance

Only World Group Holdings Berhad issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that Only World Group Holdings Berhad's statutory profits are better than its underlying earnings power. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we've identified 3 warning signs with Only World Group Holdings Berhad, and understanding them should be part of your investment process.

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