We Think You Should Be Aware Of Some Concerning Factors In TECO Electric & Machinery's (TPE:1504) Earnings

TECO Electric & Machinery Co., Ltd.'s (TPE:1504) robust recent earnings didn't do much to move the stock. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

View our latest analysis for TECO Electric & Machinery

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. TECO Electric & Machinery expanded the number of shares on issue by 8.4% over the last year. As a result, its net income is now split between a greater number of shares. 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. Check out TECO Electric & Machinery's historical EPS growth by clicking on this link.

How Is Dilution Impacting TECO Electric & Machinery's Earnings Per Share? (EPS)

As you can see above, TECO Electric & Machinery has been growing its net income over the last few years, with an annualized gain of 14% over three years. And in the last year the company managed to bump profit up by 9.1%. But in comparison, EPS only increased by 9.6% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if TECO Electric & Machinery 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 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 TECO Electric & Machinery's Profit Performance

Each TECO Electric & Machinery 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 TECO Electric & Machinery's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 16% 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example - TECO Electric & Machinery has 2 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of TECO Electric & Machinery'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 that insiders are buying.

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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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