We Think That There Are More Issues For Phoenix Silicon International (TWSE:8028) Than Just Sluggish Earnings

Phoenix Silicon International Corporation's (TWSE:8028) recent weak earnings report didn't cause a big stock movement. However, we believe that investors should be aware of some underlying factors which may be of concern.

See our latest analysis for Phoenix Silicon International

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Phoenix Silicon International increased the number of shares on issue by 13% over the last twelve months by issuing new shares. As a result, its net income is now split between a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. Check out Phoenix Silicon International's historical EPS growth by clicking on this link.

A Look At The Impact Of Phoenix Silicon International's Dilution On Its Earnings Per Share (EPS)

Phoenix Silicon International has improved its profit over the last three years, with an annualized gain of 23% in that time. But EPS was only up 7.8% per year, in the exact same period. Net income was down 17% over the last twelve months. But the EPS result was even worse, with the company recording a decline of 25%. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if Phoenix Silicon International'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 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 Phoenix Silicon International.

The Impact Of Unusual Items On Profit

Finally, we should also consider the fact that unusual items boosted Phoenix Silicon International's net profit by NT$30m over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Phoenix Silicon International doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Phoenix Silicon International's Profit Performance

In its last report Phoenix Silicon International benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. Considering all this we'd argue Phoenix Silicon International's profits probably give an overly generous impression of its sustainable level of profitability. If you'd like to know more about Phoenix Silicon International as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Phoenix Silicon International has 3 warning signs and it would be unwise to ignore them.

Our examination of Phoenix Silicon International has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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.