Is There More To The Story Than JF Technology Berhad's (KLSE:JFTECH) Earnings Growth?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. Today we'll focus on whether this year's statutory profits are a good guide to understanding JF Technology Berhad (KLSE:JFTECH).

While JF Technology Berhad was able to generate revenue of RM29.5m in the last twelve months, we think its profit result of RM10.2m was more important. Happily, it has grown both its profit and revenue over the last three years, as you can see in the chart below.

See our latest analysis for JF Technology Berhad

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. In this article we'll look at how JF Technology Berhad is impacting shareholders by issuing new shares. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of JF Technology Berhad.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, JF Technology Berhad increased the number of shares on issue by 10.0% over the last twelve months by issuing new shares. 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. Check out JF Technology Berhad's historical EPS growth by clicking on this link.

How Is Dilution Impacting JF Technology Berhad's Earnings Per Share? (EPS)

JF Technology Berhad has improved its profit over the last three years, with an annualized gain of 42% in that time. And the 411% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 404% in that time. So you can see that the dilution has had a bit of an impact on shareholders. Therefore, the dilution is having a noteworthy influence on shareholder returns. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if JF Technology Berhad can grow EPS persistently. 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.

Our Take On JF Technology Berhad's Profit Performance

Each JF Technology 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 JF Technology Berhad's true underlying earnings power is actually less than its statutory profit. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you'd like to know more about JF Technology Berhad as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that JF Technology Berhad has 2 warning signs and it would be unwise to ignore them.

This note has only looked at a single factor that sheds light on the nature of JF Technology 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. 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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