Magna Prima Berhad (KLSE:MAGNA) Strong Profits May Be Masking Some Underlying Issues

Magna Prima Berhad's (KLSE:MAGNA) healthy profit numbers didn't contain any surprises for investors. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

Check out our latest analysis for Magna Prima Berhad

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Magna Prima Berhad expanded the number of shares on issue by 20% over the last year. That means its earnings are split among a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. Check out Magna Prima Berhad's historical EPS growth by clicking on this link.

How Is Dilution Impacting Magna Prima Berhad's Earnings Per Share? (EPS)

Magna Prima Berhad was losing money three years ago. Zooming in to the last year, we still can't talk about growth rates coherently, since it made a loss last year. But mathematics aside, it is always good to see when a formerly unprofitable business come good (though we accept profit would have been higher if dilution had not been required). Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if Magna Prima 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.

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

Our Take On Magna Prima Berhad's Profit Performance

Over the last year Magna Prima Berhad issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that Magna Prima Berhad's statutory profits are better than its underlying earnings power. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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 want to do dive deeper into Magna Prima Berhad, you'd also look into what risks it is currently facing. To help with this, we've discovered 4 warning signs (2 are a bit concerning!) that you ought to be aware of before buying any shares in Magna Prima Berhad.

Today we've zoomed in on a single data point to better understand the nature of Magna Prima 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. 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 that insiders are buying 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.