Earnings Troubles May Signal Larger Issues for UMS Integration (SGX:558) Shareholders

A lackluster earnings announcement from UMS Integration Limited (SGX:558) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

Check out our latest analysis for UMS Integration

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, UMS Integration increased the number of shares on issue by 6.0% 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 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. You can see a chart of UMS Integration's EPS by clicking here.

How Is Dilution Impacting UMS Integration's Earnings Per Share (EPS)?

UMS Integration's net profit dropped by 7.2% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 25%. Sadly, earnings per share fell further, down a full 28% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if UMS Integration's earnings per share can increase, then the share price should too. 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 UMS Integration's Profit Performance

UMS Integration issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that UMS Integration's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 2 warning signs for UMS Integration you should know about.

This note has only looked at a single factor that sheds light on the nature of UMS Integration'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. 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 with significant insider holdings to be useful.

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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.