Tanco Holdings Berhad's (KLSE:TANCO) Sluggish Earnings Might Be Just The Beginning Of Its Problems

The market rallied behind Tanco Holdings Berhad's (KLSE:TANCO) stock, leading do a rise in the share price after its recent weak earnings report. Sometimes, shareholders are willing to ignore soft numbers with the hope that they will improve, but our analysis suggests this is unlikely for Tanco Holdings Berhad.

See our latest analysis for Tanco Holdings Berhad

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Tanco Holdings Berhad issued 9.9% more new shares 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. You can see a chart of Tanco Holdings Berhad's EPS by clicking here.

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

Three years ago, Tanco Holdings Berhad lost money. And even focusing only on the last twelve months, we see profit is down 36%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 43% in the same period. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Tanco Holdings Berhad's earnings per share can increase, then the share price should too. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

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 Tanco Holdings Berhad's Profit Performance

Tanco Holdings 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 Tanco Holdings Berhad's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. 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 2 warning signs for Tanco Holdings Berhad you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Tanco Holdings Berhad's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.