Why Data Image's (TWSE:3168) Shaky Earnings Are Just The Beginning Of Its Problems

A lackluster earnings announcement from Data Image Corporation (TWSE:3168) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Data Image issued 13% more new shares over the last year. That means its earnings are split among 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. Check out Data Image's historical EPS growth by clicking on this link.

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

Data Image's net profit dropped by 30% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 20%. Sadly, earnings per share fell further, down a full 27% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if Data Image'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 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 Data Image.

Our Take On Data Image's Profit Performance

Over the last year Data Image issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that Data Image's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example - Data Image has 1 warning sign we think you should be aware of.

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