Weak Statutory Earnings May Not Tell The Whole Story For AcBel Polytech (TWSE:6282)

The market shrugged off AcBel Polytech Inc.'s (TWSE:6282) weak earnings report last week. Our analysis suggests that there are some positive factors lying below the troubling profit numbers which investors are finding comfort in.

View our latest analysis for AcBel Polytech

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, AcBel Polytech increased the number of shares on issue by 61% 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 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 AcBel Polytech's EPS by clicking here.

A Look At The Impact Of AcBel Polytech's Dilution On Its Earnings Per Share (EPS)

AcBel Polytech's net profit dropped by 83% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 45%. Sadly, earnings per share fell further, down a full 66% in that time. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, if AcBel Polytech's earnings per share can increase, then the share price should too. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

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.

The Impact Of Unusual Items On Profit

On top of the dilution, we should also consider the NT$161m impact of unusual items in the last year, which had the effect of suppressing profit. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect AcBel Polytech to produce a higher profit next year, all else being equal.

Our Take On AcBel Polytech's Profit Performance

To sum it all up, AcBel Polytech took a hit from unusual items which pushed its profit down; without that, it would have made more money. But on the other hand, the company issued more shares, so without buying more shares each shareholder will end up with a smaller part of the profit. Based on these factors, we think it's very unlikely that AcBel Polytech's statutory profits make it seem much weaker than it is. So while earnings quality is important, it's equally important to consider the risks facing AcBel Polytech at this point in time. For example, we've found that AcBel Polytech has 3 warning signs (1 is a bit unpleasant!) that deserve your attention before going any further with your analysis.

Our examination of AcBel Polytech has focussed on certain factors that can make its earnings look better than they are. 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. 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.

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.