NationGate Holdings Berhad's (KLSE:NATGATE) Solid Earnings May Rest On Weak Foundations

NationGate Holdings Berhad (KLSE:NATGATE) just released a solid earnings report, and the stock displayed some strength. However, we think that shareholders should be cautious as we found some worrying factors underlying the profit.

View our latest analysis for NationGate Holdings Berhad

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, NationGate Holdings Berhad increased the number of shares on issue by 9.8% 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 NationGate Holdings Berhad's EPS by clicking here.

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

NationGate Holdings Berhad has improved its profit over the last three years, with an annualized gain of 89% in that time. But on the other hand, earnings per share actually fell by 97% per year. And in the last year the company managed to bump profit up by 3.6%. But in comparison, EPS only increased by 34% over the same period. 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 NationGate Holdings 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 the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

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 NationGate Holdings Berhad's Profit Performance

NationGate Holdings Berhad shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that NationGate Holdings Berhad's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 34% in 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. So while earnings quality is important, it's equally important to consider the risks facing NationGate Holdings Berhad at this point in time. Case in point: We've spotted 2 warning signs for NationGate Holdings Berhad you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of NationGate Holdings Berhad's profit. But there are plenty of other ways to inform your opinion of a company. 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 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.