HCK Capital Group Berhad's (KLSE:HCK) Problems Go Beyond Weak Profit

HCK Capital Group Berhad's (KLSE:HCK) recent weak earnings report didn't cause a big stock movement. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

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One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. HCK Capital Group Berhad expanded the number of shares on issue by 12% over the last year. That means its earnings are split among a greater number of shares. 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. You can see a chart of HCK Capital Group Berhad's EPS by clicking here.

How Is Dilution Impacting HCK Capital Group Berhad's Earnings Per Share (EPS)?

As you can see above, HCK Capital Group Berhad has been growing its net income over the last few years, with an annualized gain of 3,581% over three years. In comparison, earnings per share only gained 2,624% over the same period. Net income was down 36% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 45%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If HCK Capital Group Berhad'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.

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

Our Take On HCK Capital Group Berhad's Profit Performance

HCK Capital Group Berhad 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 HCK Capital Group Berhad's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. Case in point: We've spotted 1 warning sign for HCK Capital Group Berhad you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of HCK Capital Group Berhad's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.