We Think That There Are Some Issues For Perak Transit Berhad (KLSE:PTRANS) Beyond Its Promising Earnings

Perak Transit Berhad's (KLSE:PTRANS) healthy profit numbers didn't contain any surprises for investors. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

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To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Perak Transit Berhad expanded the number of shares on issue by 6.2% over the last year. As a result, its net income is now split between a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. Check out Perak Transit Berhad's historical EPS growth by clicking on this link.

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

Perak Transit Berhad has improved its profit over the last three years, with an annualized gain of 36% in that time. But EPS was only up 18% per year, in the exact same period. And in the last year the company managed to bump profit up by 8.7%. But in comparison, EPS only increased by 7.2% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So Perak Transit 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 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 Perak Transit Berhad's Profit Performance

Each Perak Transit Berhad share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Perak Transit Berhad's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 18% per annum growth in EPS for the last three. 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. To that end, you should learn about the 2 warning signs we've spotted with Perak Transit Berhad (including 1 which doesn't sit too well with us).

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