Impressive Earnings May Not Tell The Whole Story For Mikro MSC Berhad (KLSE:MIKROMB)

Mikro MSC Berhad (KLSE:MIKROMB) announced strong profits, but the stock was stagnant. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

View our latest analysis for Mikro MSC Berhad

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Mikro MSC Berhad increased the number of shares on issue by 44% over the last twelve months by issuing new shares. That means its earnings are split among 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. Check out Mikro MSC Berhad's historical EPS growth by clicking on this link.

How Is Dilution Impacting Mikro MSC Berhad's Earnings Per Share (EPS)?

As you can see above, Mikro MSC Berhad has been growing its net income over the last few years, with an annualized gain of 615% over three years. But EPS was only up 292% per year, in the exact same period. And the 831% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 428% over the same period. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So Mikro MSC Berhad shareholders will want to see that EPS figure continue to increase. 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 Mikro MSC Berhad.

Our Take On Mikro MSC Berhad's Profit Performance

Mikro MSC Berhad shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. For this reason, we think that Mikro MSC Berhad's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But the good news is that its EPS growth over the last three years has been very impressive. 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 want to do dive deeper into Mikro MSC Berhad, you'd also look into what risks it is currently facing. While conducting our analysis, we found that Mikro MSC Berhad has 3 warning signs and it would be unwise to ignore them.

Today we've zoomed in on a single data point to better understand the nature of Mikro MSC Berhad's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 with high insider ownership.

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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.