Weak Statutory Earnings May Not Tell The Whole Story For HHRG Berhad (KLSE:HHRG)

A lackluster earnings announcement from HHRG Berhad (KLSE:HHRG) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

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To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, HHRG Berhad issued 10% more new shares over the last year. 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 HHRG Berhad's EPS by clicking here.

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

Unfortunately, HHRG Berhad's profit is down 63% per year over three years. Even looking at the last year, profit was still down 39%. Sadly, earnings per share fell further, down a full 50% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if HHRG 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 HHRG Berhad.

Our Take On HHRG Berhad's Profit Performance

Over the last year HHRG Berhad issued new shares and so, there's a noteworthy divergence between EPS and 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. In further bad news, its earnings per share decreased in the last year. 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 while earnings quality is important, it's equally important to consider the risks facing HHRG Berhad at this point in time. To help with this, we've discovered 3 warning signs (1 can't be ignored!) that you ought to be aware of before buying any shares in HHRG Berhad.

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. 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 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.