Allis ElectricLtd's (TWSE:1514) Promising Earnings May Rest On Soft Foundations

Allis Electric Co.,Ltd. (TWSE:1514) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.

See our latest analysis for Allis ElectricLtd

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Allis ElectricLtd increased the number of shares on issue by 6.2% over the last twelve months by issuing new shares. As a result, its net income is now split between 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 Allis ElectricLtd's historical EPS growth by clicking on this link.

How Is Dilution Impacting Allis ElectricLtd's Earnings Per Share (EPS)?

Allis ElectricLtd has improved its profit over the last three years, with an annualized gain of 167% in that time. And the 63% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 59% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

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 Allis ElectricLtd 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 Allis ElectricLtd's Profit Performance

Each Allis ElectricLtd share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Allis ElectricLtd's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 2 warning signs for Allis ElectricLtd and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Allis ElectricLtd'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.