We Think That There Are Issues Underlying Tex Year Industries' (TWSE:4720) Earnings

Tex Year Industries Inc.'s (TWSE:4720) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Tex Year Industries issued 10% more new shares 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 Tex Year Industries' historical EPS growth by clicking on this link.

How Is Dilution Impacting Tex Year Industries' Earnings Per Share (EPS)?

Tex Year Industries has improved its profit over the last three years, with an annualized gain of 458% in that time. But EPS was only up 405% per year, in the exact same period. And the 111% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 104% over the same period. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So Tex Year Industries shareholders will want to see that EPS figure continue to increase. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Tex Year Industries.

Our Take On Tex Year Industries' Profit Performance

Tex Year Industries shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that Tex Year Industries' true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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 while earnings quality is important, it's equally important to consider the risks facing Tex Year Industries at this point in time. At Simply Wall St, we found 2 warning signs for Tex Year Industries and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Tex Year Industries' profit. 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.

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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.