Weak Statutory Earnings May Not Tell The Whole Story For Gold Circuit Electronics (TWSE:2368)

Gold Circuit Electronics Ltd.'s (TWSE:2368) stock showed strength, with investors undeterred by its weak earnings report. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.

Check out our latest analysis for Gold Circuit Electronics

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Gold Circuit Electronics 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 Gold Circuit Electronics' historical EPS growth by clicking on this link.

How Is Dilution Impacting Gold Circuit Electronics' Earnings Per Share (EPS)?

Gold Circuit Electronics has improved its profit over the last three years, with an annualized gain of 71% in that time. Net profit actually dropped by 23% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 18%. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Gold Circuit Electronics' 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.

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 Gold Circuit Electronics' Profit Performance

Gold Circuit Electronics issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Gold Circuit Electronics' 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we've identified 2 warning signs with Gold Circuit Electronics, and understanding them should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Gold Circuit Electronics' 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 that insiders are buying 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.