PMB Technology Berhad's (KLSE:PMBTECH) Shareholders May Want To Dig Deeper Than Statutory Profit

The market for PMB Technology Berhad's (KLSE:PMBTECH) stock was strong after it released a healthy earnings report last week. Despite this, our analysis suggests that there are some factors weakening the foundations of those good profit numbers.

View our latest analysis for PMB Technology Berhad

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. PMB Technology Berhad expanded the number of shares on issue by 17% over the last year. As a result, its net income is now split between a greater number of shares. 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. You can see a chart of PMB Technology Berhad's EPS by clicking here.

A Look At The Impact Of PMB Technology Berhad's Dilution On Its Earnings Per Share (EPS)

Unfortunately, PMB Technology Berhad's profit is down 22% per year over three years. On the bright side, in the last twelve months it grew profit by 95%. On the other hand, earnings per share are only up 59% 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 PMB Technology Berhad can grow EPS persistently. 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.

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.

Our Take On PMB Technology Berhad's Profit Performance

PMB Technology 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 PMB Technology Berhad's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 59% in 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. To that end, you should learn about the 4 warning signs we've spotted with PMB Technology Berhad (including 2 which are potentially serious).

This note has only looked at a single factor that sheds light on the nature of PMB Technology Berhad'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. 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.