Investors Shouldn't Be Too Comfortable With Oriental Interest Berhad's (KLSE:OIB) Earnings

Oriental Interest Berhad (KLSE:OIB) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.

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To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Oriental Interest Berhad increased the number of shares on issue by 29% over the last twelve months by issuing new shares. 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. Check out Oriental Interest Berhad's historical EPS growth by clicking on this link.

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

As you can see above, Oriental Interest Berhad has been growing its net income over the last few years, with an annualized gain of 57% over three years. But EPS was only up 39% per year, in the exact same period. And the 44% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 27% in that time. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So Oriental Interest Berhad shareholders will want to see that EPS figure continue to increase. 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 Oriental Interest Berhad.

Our Take On Oriental Interest Berhad's Profit Performance

Each Oriental Interest 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 Oriental Interest Berhad's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 39% per annum growth in EPS for the last three. 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 Oriental Interest Berhad as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Oriental Interest Berhad, and understanding this should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Oriental Interest 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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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.