Aurelius Technologies Berhad's (KLSE:ATECH) Promising Earnings May Rest On Soft Foundations

Investors were disappointed with Aurelius Technologies Berhad's (KLSE:ATECH) earnings, despite the strong profit numbers. We think that the market might be paying attention to some underlying factors are concerning.

See our latest analysis for Aurelius Technologies Berhad

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Aurelius Technologies Berhad increased the number of shares on issue by 10.0% over the last twelve months by issuing new shares. As a result, its net income is now split between a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a chart of Aurelius Technologies Berhad's EPS by clicking here.

A Look At The Impact Of Aurelius Technologies Berhad's Dilution On Its Earnings Per Share (EPS)

As you can see above, Aurelius Technologies Berhad has been growing its net income over the last few years, with an annualized gain of 58% over three years. But on the other hand, earnings per share actually fell by 86% per year. And the 69% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 37% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Aurelius Technologies Berhad can grow EPS persistently. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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.

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.

Our Take On Aurelius Technologies Berhad's Profit Performance

Aurelius Technologies Berhad shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that Aurelius Technologies Berhad's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 37% in the last year. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Aurelius Technologies Berhad.

This note has only looked at a single factor that sheds light on the nature of Aurelius Technologies 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. 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. 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.