HHRG Berhad's (KLSE:HHRG) Anemic Earnings Might Be Worse Than You Think

The subdued market reaction suggests that HHRG Berhad's (KLSE:HHRG) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.

See our latest analysis for HHRG Berhad

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, HHRG Berhad issued 10% 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. You can see a chart of HHRG Berhad's EPS by clicking here.

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

HHRG Berhad has improved its profit over the last three years, with an annualized gain of 128% in that time. In contrast, earnings per share were actually down by 24% per year, in the exact same period. Net income was down 34% over the last twelve months. But the EPS result was even worse, with the company recording a decline of 39%. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if HHRG Berhad's earnings per share can increase, then the share price should too. 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.

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

Our Take On HHRG Berhad's Profit Performance

HHRG 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 HHRG Berhad's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. While conducting our analysis, we found that HHRG Berhad has 3 warning signs and it would be unwise to ignore these bad boys.

Today we've zoomed in on a single data point to better understand the nature of HHRG Berhad's profit. But there are plenty of other ways to inform your opinion of a company. 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. 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 with significant insider holdings to be useful.

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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.