Bestec Power Electronics' (TWSE:3308) Earnings Quality Is Low

Bestec Power Electronics Co., Ltd.'s (TWSE:3308) stock wasn't much affected by its recent lackluster earnings numbers. We did some analysis and found some concerning details beneath the statutory profit number.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Bestec Power Electronics increased the number of shares on issue by 17% 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 Bestec Power Electronics' EPS by clicking here.

How Is Dilution Impacting Bestec Power Electronics' Earnings Per Share (EPS)?

Three years ago, Bestec Power Electronics lost money. And even focusing only on the last twelve months, we see profit is down 87%. Sadly, earnings per share fell further, down a full 87% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If Bestec Power Electronics' 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 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Bestec Power Electronics.

How Do Unusual Items Influence Profit?

Finally, we should also consider the fact that unusual items boosted Bestec Power Electronics' net profit by NT$48m over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. We can see that Bestec Power Electronics' positive unusual items were quite significant relative to its profit in the year to December 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Bestec Power Electronics' Profit Performance

In its last report Bestec Power Electronics benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. For the reasons mentioned above, we think that a perfunctory glance at Bestec Power Electronics' statutory profits might make it look better than it really is on an underlying level. If you'd like to know more about Bestec Power Electronics as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 4 warning signs for Bestec Power Electronics you should be aware of.

Our examination of Bestec Power Electronics has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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 with significant insider holdings to be useful.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.