GE-Shen Corporation Berhad's (KLSE:GESHEN) Solid Profits Have Weak Fundamentals

Investors were disappointed with GE-Shen Corporation Berhad's (KLSE:GESHEN) earnings, despite the strong profit numbers. We think that the market might be paying attention to some underlying factors that they find to be concerning.

See our latest analysis for GE-Shen Corporation Berhad

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. GE-Shen Corporation Berhad expanded the number of shares on issue by 14% 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. Check out GE-Shen Corporation Berhad's historical EPS growth by clicking on this link.

A Look At The Impact Of GE-Shen Corporation Berhad's Dilution On Its Earnings Per Share (EPS)

GE-Shen Corporation Berhad has improved its profit over the last three years, with an annualized gain of 47% in that time. But EPS was only up 33% per year, in the exact same period. And the 130% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 115% over the same period. 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 it will certainly be a positive for shareholders if GE-Shen Corporation Berhad 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 GE-Shen Corporation Berhad.

Our Take On GE-Shen Corporation Berhad's Profit Performance

Each GE-Shen Corporation Berhad share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that GE-Shen Corporation Berhad's statutory profits are better than its underlying earnings power. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over the 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 4 warning signs for GE-Shen Corporation Berhad (of which 2 are a bit concerning!) you should know about.

This note has only looked at a single factor that sheds light on the nature of GE-Shen Corporation 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.