Are Luster Industries Bhd's (KLSE:LUSTER) Statutory Earnings A Good Reflection Of Its Earnings Potential?

Broadly speaking, profitable businesses are less risky than unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. In this article, we'll look at how useful this year's statutory profit is, when analysing Luster Industries Bhd (KLSE:LUSTER).

We like the fact that Luster Industries Bhd made a profit of RM6.86m on its revenue of RM184.4m, in the last year. The chart below shows that revenue has improved over the last three years, and, even better, the company has moved from unprofitable to profitable.

See our latest analysis for Luster Industries Bhd

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 Luster Industries Bhd's decision to issue new shares in the company has impacted returns to shareholders. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Luster Industries Bhd.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Luster Industries Bhd expanded the number of shares on issue by 16% 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 Luster Industries Bhd's historical EPS growth by clicking on this link.

How Is Dilution Impacting Luster Industries Bhd's Earnings Per Share? (EPS)

Three years ago, Luster Industries Bhd lost money. Even looking at the last year, profit was still down 46%. Sadly, earnings per share fell further, down a full 50% 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.

If Luster Industries Bhd's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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 Luster Industries Bhd's Profit Performance

Luster Industries Bhd 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 Luster Industries Bhd's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example - Luster Industries Bhd has 3 warning signs we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Luster Industries Bhd'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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