ASMedia Technology's (TWSE:5269) Solid Profits Have Weak Fundamentals

Unsurprisingly, ASMedia Technology Inc.'s (TWSE:5269) stock price was strong on the back of its healthy earnings report. However, we think that shareholders may be missing some concerning details in the numbers.

See our latest analysis for ASMedia Technology

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. ASMedia Technology expanded the number of shares on issue by 7.6% over the last year. Therefore, each share now receives a smaller portion of profit. 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 ASMedia Technology's EPS by clicking here.

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

ASMedia Technology has improved its profit over the last three years, with an annualized gain of 2.6% in that time. And the 64% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 62% 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 it will certainly be a positive for shareholders if ASMedia Technology can grow EPS persistently. 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 ASMedia Technology's Profit Performance

ASMedia Technology 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 ASMedia Technology's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 62% 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. Case in point: We've spotted 2 warning signs for ASMedia Technology you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of ASMedia Technology's 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.