Oriental Interest Berhad's (KLSE:OIB) Solid Earnings May Rest On Weak Foundations

Oriental Interest Berhad's (KLSE:OIB) healthy profit numbers didn't contain any surprises for investors. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

See our latest analysis for Oriental Interest Berhad

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Oriental Interest Berhad expanded the number of shares on issue by 50% over the last year. As a result, its net income is now split between 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 Oriental Interest Berhad's historical EPS growth by clicking on this link.

How Is Dilution Impacting Oriental Interest Berhad's Earnings Per Share? (EPS)

Oriental Interest Berhad has improved its profit over the last three years, with an annualized gain of 40% in that time. But EPS was only up 22% per year, in the exact same period. And the 49% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 32% over the same period. So you can see that the dilution has had a fairly significant impact on shareholders.

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

As we discussed above, Oriental Interest Berhad's dilution over the last year has a major impact on its per-share earnings. As a result, we think it may well be the case that Oriental Interest Berhad's underlying earnings power is lower than its statutory profit. But at least holders can take some solace from the 22% per annum growth in EPS for the last three. 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. So while earnings quality is important, it's equally important to consider the risks facing Oriental Interest Berhad at this point in time. In terms of investment risks, we've identified 3 warning signs with Oriental Interest Berhad, and understanding these should be part of your investment process.

Today we've zoomed in on a single data point to better understand 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 that insiders are buying to be useful.

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.

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