Shareholders In UOA Development Bhd (KLSE:UOADEV) Should Look Beyond Earnings For The Full Story

Even though UOA Development Bhd (KLSE:UOADEV) posted strong earnings recently, the stock hasn't reacted in a large way. We decided to have a deeper look, and we believe that investors might be worried about several concerning factors that we found.

See our latest analysis for UOA Development Bhd

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, UOA Development Bhd issued 5.4% 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. Check out UOA Development Bhd's historical EPS growth by clicking on this link.

How Is Dilution Impacting UOA Development Bhd's Earnings Per Share (EPS)?

UOA Development Bhd has improved its profit over the last three years, with an annualized gain of 75% in that time. In comparison, earnings per share only gained 51% over the same period. And the 30% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 25% over the same period. So you can see that the dilution has had a bit of an impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So UOA Development Bhd 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 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.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that UOA Development Bhd's profit was boosted by unusual items worth RM83m in the last twelve months. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. UOA Development Bhd had a rather significant contribution from unusual items relative to its profit to September 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On UOA Development Bhd's Profit Performance

In its last report UOA Development Bhd benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. For the reasons mentioned above, we think that a perfunctory glance at UOA Development Bhd's statutory profits might make it look better than it really is on an underlying level. So while earnings quality is important, it's equally important to consider the risks facing UOA Development Bhd at this point in time. For example, we've found that UOA Development Bhd has 3 warning signs (1 is a bit concerning!) that deserve your attention before going any further with your analysis.

Our examination of UOA Development Bhd has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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. 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.