D'nonce Technology Bhd's (KLSE:DNONCE) Promising Earnings May Rest On Soft Foundations

Unsurprisingly, D'nonce Technology Bhd.'s (KLSE:DNONCE) stock price was strong on the back of its healthy earnings report. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

View our latest analysis for D'nonce Technology Bhd

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. D'nonce Technology Bhd expanded the number of shares on issue by 19% over the last year. Therefore, each share now receives a smaller portion of profit. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. Check out D'nonce Technology Bhd's historical EPS growth by clicking on this link.

How Is Dilution Impacting D'nonce Technology Bhd's Earnings Per Share? (EPS)

As you can see above, D'nonce Technology Bhd has been growing its net income over the last few years, with an annualized gain of 205% over three years. But EPS was only up 91% per year, in the exact same period. And the 2,999% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 2,630% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if D'nonce Technology Bhd can grow EPS persistently. 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 D'nonce Technology Bhd.

Our Take On D'nonce Technology Bhd's Profit Performance

D'nonce Technology Bhd 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 D'nonce Technology Bhd'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. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 2 warning signs for D'nonce Technology Bhd you should know about.

Today we've zoomed in on a single data point to better understand the nature of D'nonce Technology Bhd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying to be useful.

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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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