Stock Analysis

Rubberex Corporation (M) Berhad (KLSE:RUBEREX) Is Growing Earnings But Are They A Good Guide?

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Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. In this article, we'll look at how useful this year's statutory profit is, when analysing Rubberex Corporation (M) Berhad (KLSE:RUBEREX).

It's good to see that over the last twelve months Rubberex Corporation (M) Berhad made a profit of RM75.6m on revenue of RM314.7m. Even though its revenue is down over the last three years, its profit has actually increased, as you can see, below.

View our latest analysis for Rubberex Corporation (M) Berhad

earnings-and-revenue-history
KLSE:RUBEREX Earnings and Revenue History December 3rd 2020

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. In this article we will consider how Rubberex Corporation (M) Berhad's decision to issue new shares in the company has impacted returns to shareholders. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Rubberex Corporation (M) Berhad expanded the number of shares on issue by 10% over the last year. Therefore, each share now receives a smaller portion of profit. 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 Rubberex Corporation (M) Berhad's EPS by clicking here.

A Look At The Impact Of Rubberex Corporation (M) Berhad's Dilution on Its Earnings Per Share (EPS).

Rubberex Corporation (M) Berhad has improved its profit over the last three years, with an annualized gain of 346% in that time. In comparison, earnings per share only gained 320% over the same period. And at a glance the 578% gain in profit over the last year impresses. On the other hand, earnings per share are only up 553% in that time. So you can see that the dilution has had a bit of an impact on shareholders. Therefore, the dilution is having a noteworthy influence on shareholder returns. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So Rubberex Corporation (M) Berhad shareholders will want to see that EPS figure continue to increase. 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.

Our Take On Rubberex Corporation (M) Berhad's Profit Performance

Rubberex Corporation (M) 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 Rubberex Corporation (M) Berhad's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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 Rubberex Corporation (M) Berhad as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 2 warning signs with Rubberex Corporation (M) Berhad, and understanding them should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Rubberex Corporation (M) 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 that insiders are buying.

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