We Think That There Are Some Issues For MAG Holdings Berhad (KLSE:MAG) Beyond Its Promising Earnings

MAG Holdings Berhad's (KLSE:MAG) healthy profit numbers didn't contain any surprises for investors. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

View our latest analysis for MAG Holdings Berhad

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, MAG Holdings Berhad issued 5.2% 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. Check out MAG Holdings Berhad's historical EPS growth by clicking on this link.

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

As you can see above, MAG Holdings Berhad has been growing its net income over the last few years, with an annualized gain of 494% over three years. But EPS was only up 152% per year, in the exact same period. And over the last 12 months, the company grew its profit by 6.5%. But that's starkly different from the 2.6% drop in earnings per share. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if MAG 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 MAG Holdings Berhad.

Our Take On MAG Holdings Berhad's Profit Performance

MAG Holdings Berhad shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that MAG Holdings Berhad's true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of MAG Holdings Berhad.

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. 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.