Eupe Corporation Berhad (KLSE:EUPE) Strong Profits May Be Masking Some Underlying Issues

The recent earnings posted by Eupe Corporation Berhad (KLSE:EUPE) were solid, but the stock didn't move as much as we expected. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

Check out our latest analysis for Eupe Corporation Berhad

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Eupe Corporation Berhad issued 15% more new shares over the last year. That means its earnings are split among 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 Eupe Corporation Berhad's EPS by clicking here.

How Is Dilution Impacting Eupe Corporation Berhad's Earnings Per Share (EPS)?

As you can see above, Eupe Corporation Berhad has been growing its net income over the last few years, with an annualized gain of 68% over three years. In comparison, earnings per share only gained 51% over the same period. And the 44% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 30% 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 Eupe Corporation 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Eupe Corporation Berhad.

Our Take On Eupe Corporation Berhad's Profit Performance

Each Eupe Corporation Berhad share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Eupe Corporation Berhad's true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 51% over the last three years. 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. If you'd like to know more about Eupe Corporation Berhad as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 2 warning signs for Eupe Corporation Berhad and you'll want to know about them.

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