Aspen (Group) Holdings' (SGX:1F3) Profits Appear To Have Quality Issues

Aspen (Group) Holdings Limited's (SGX:1F3) healthy profit numbers didn't contain any surprises for investors. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

Check out our latest analysis for Aspen (Group) Holdings

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Aspen (Group) Holdings expanded the number of shares on issue by 10% over the last year. That means its earnings are split among 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 Aspen (Group) Holdings' historical EPS growth by clicking on this link.

How Is Dilution Impacting Aspen (Group) Holdings' Earnings Per Share? (EPS)

Aspen (Group) Holdings' net profit dropped by 13% per year over the last three years. On the bright side, in the last twelve months it grew profit by 329%. But EPS was less impressive, up only 315% in that time. 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 it will certainly be a positive for shareholders if Aspen (Group) Holdings 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Aspen (Group) Holdings.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Aspen (Group) Holdings' profit suffered from unusual items, which reduced profit by RM3.2m in the last twelve months. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Aspen (Group) Holdings doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Aspen (Group) Holdings' Profit Performance

To sum it all up, Aspen (Group) Holdings took a hit from unusual items which pushed its profit down; without that, it would have made more money. But on the other hand, the company issued more shares, so without buying more shares each shareholder will end up with a smaller part of the profit. Based on these factors, it's hard to tell if Aspen (Group) Holdings' profits are a reasonable reflection of its underlying profitability. 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. Every company has risks, and we've spotted 2 warning signs for Aspen (Group) Holdings (of which 1 is concerning!) you should know about.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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. 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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This article by Simply Wall St is general in nature. 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.
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