Swancor Holding's (TWSE:3708) Problems Go Beyond Weak Profit

Swancor Holding Co., LTD.'s (TWSE:3708) recent weak earnings report didn't cause a big stock movement. We think that investors are worried about some weaknesses underlying the earnings.

See our latest analysis for Swancor Holding

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Swancor Holding expanded the number of shares on issue by 11% over the last year. 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. Check out Swancor Holding's historical EPS growth by clicking on this link.

How Is Dilution Impacting Swancor Holding's Earnings Per Share (EPS)?

Swancor Holding has improved its profit over the last three years, with an annualized gain of 53% in that time. In comparison, earnings per share only gained 35% over the same period. Net profit actually dropped by 77% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 79%. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Swancor Holding's 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 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 Swancor Holding's Profit Performance

Swancor Holding 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 Swancor Holding's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 35% over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing Swancor Holding at this point in time. To that end, you should learn about the 2 warning signs we've spotted with Swancor Holding (including 1 which shouldn't be ignored).

Today we've zoomed in on a single data point to better understand the nature of Swancor Holding'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 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.