Censof Holdings Berhad's (KLSE:CENSOF) Promising Earnings May Rest On Soft Foundations

By
Simply Wall St
Published
May 25, 2021
KLSE:CENSOF
Source: Shutterstock

Unsurprisingly, Censof Holdings Berhad's (KLSE:CENSOF) stock price was strong on the back of its healthy earnings report. However, we think that shareholders may be missing some concerning details in the numbers.

Check out our latest analysis for Censof Holdings Berhad

earnings-and-revenue-history
KLSE:CENSOF Earnings and Revenue History May 25th 2021

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Censof Holdings Berhad expanded the number of shares on issue by 10% over the last year. As a result, its net income is now split between 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 Censof Holdings Berhad's historical EPS growth by clicking on this link.

How Is Dilution Impacting Censof Holdings Berhad's Earnings Per Share? (EPS)

Three years ago, Censof Holdings Berhad lost money. Zooming in to the last year, we still can't talk about growth rates coherently, since it made a loss last year. What we do know is that while it's great to see a profit over the last twelve months, that profit would have been better, on a per share basis, if the company hadn't needed to issue shares. So you can see that the dilution has had a bit of an impact on shareholders.

If Censof Holdings Berhad's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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 Censof Holdings Berhad.

Our Take On Censof Holdings Berhad's Profit Performance

Censof Holdings Berhad issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Censof Holdings Berhad's true underlying earnings power is actually less than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. While conducting our analysis, we found that Censof Holdings Berhad has 4 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 Censof 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 that insiders are buying to be useful.

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