GLOBAL TEK FABRICATION's (TWSE:4566) Weak Earnings May Only Reveal A Part Of The Whole Picture

The market wasn't impressed with the soft earnings from GLOBAL TEK FABRICATION CO., Ltd. (TWSE:4566) recently. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

View our latest analysis for GLOBAL TEK FABRICATION

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, GLOBAL TEK FABRICATION issued 13% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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 GLOBAL TEK FABRICATION's historical EPS growth by clicking on this link.

A Look At The Impact Of GLOBAL TEK FABRICATION's Dilution On Its Earnings Per Share (EPS)

As you can see above, GLOBAL TEK FABRICATION has been growing its net income over the last few years, with an annualized gain of 46% over three years. In comparison, earnings per share only gained 7.1% over the same period. Net profit actually dropped by 14% in the last year. But the EPS result was even worse, with the company recording a decline of 25%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If GLOBAL TEK FABRICATION's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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 GLOBAL TEK FABRICATION.

Our Take On GLOBAL TEK FABRICATION's Profit Performance

Over the last year GLOBAL TEK FABRICATION issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that GLOBAL TEK FABRICATION's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 7.1% per annum growth in EPS for the last three. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing GLOBAL TEK FABRICATION at this point in time. In terms of investment risks, we've identified 3 warning signs with GLOBAL TEK FABRICATION, and understanding them should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of GLOBAL TEK FABRICATION'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. 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.