Stock Analysis

Should You Use Asia Metal Industries's (GTSM:6727) Statutory Earnings To Analyse It?

TPEX:6727
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It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. That said, the current statutory profit is not always a good guide to a company's underlying profitability. Today we'll focus on whether this year's statutory profits are a good guide to understanding Asia Metal Industries (GTSM:6727).

While Asia Metal Industries was able to generate revenue of NT$892.1m in the last twelve months, we think its profit result of NT$78.2m was more important. In the chart below, you can see that its profit and revenue have both grown over the last three years, although its profit has slipped in the last twelve months.

See our latest analysis for Asia Metal Industries

earnings-and-revenue-history
GTSM:6727 Earnings and Revenue History January 12th 2021

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. In this article we'll look at how Asia Metal Industries is impacting shareholders by issuing new shares. 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.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Asia Metal Industries expanded the number of shares on issue by 16% over the last year. Therefore, each share now receives a smaller portion of profit. 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 Asia Metal Industries' EPS by clicking here.

A Look At The Impact Of Asia Metal Industries' Dilution on Its Earnings Per Share (EPS).

As you can see above, Asia Metal Industries has been growing its net income over the last few years, with an annualized gain of 92% over three years. Net income was down 30% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 30%. So you can see that the dilution has had a bit of an impact on shareholders. Therefore, the dilution is having a noteworthy influence on shareholder returns. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if Asia Metal Industries' 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 the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Our Take On Asia Metal Industries' Profit Performance

Asia Metal Industries issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that Asia Metal Industries' statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. In terms of investment risks, we've identified 6 warning signs with Asia Metal Industries, and understanding them should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Asia Metal Industries' profit. 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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