MAG Holdings Berhad's (KLSE:MAG) Earnings Are Of Questionable Quality

Despite posting some strong earnings, the market for MAG Holdings Berhad's (KLSE:MAG) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

View our latest analysis for MAG Holdings Berhad

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, MAG Holdings Berhad increased the number of shares on issue by 23% over the last twelve months by issuing new shares. 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. Check out MAG Holdings Berhad's historical EPS growth by clicking on this link.

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

Three years ago, MAG Holdings Berhad lost money. 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 fairly significant impact on shareholders.

In the long term, if MAG Holdings 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 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 MAG Holdings Berhad.

Our Take On MAG Holdings Berhad's Profit Performance

MAG 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 MAG Holdings Berhad's statutory profits are better than its underlying earnings power. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you'd like to know more about MAG Holdings Berhad as a business, it's important to be aware of any risks it's facing. Be aware that MAG Holdings Berhad is showing 3 warning signs in our investment analysis and 1 of those can't be ignored...

This note has only looked at a single factor that sheds light on the nature of MAG Holdings 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. 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.
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