Earnings Troubles May Signal Larger Issues for U-Tech Media (TWSE:3050) Shareholders

A lackluster earnings announcement from U-Tech Media Corporation (TWSE:3050) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

View our latest analysis for U-Tech Media

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. U-Tech Media expanded the number of shares on issue by 6.2% 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 U-Tech Media's historical EPS growth by clicking on this link.

A Look At The Impact Of U-Tech Media's Dilution On Its Earnings Per Share (EPS)

U-Tech Media's net profit dropped by 22% per year over the last three years. Even looking at the last year, profit was still down 33%. Sadly, earnings per share fell further, down a full 34% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if U-Tech Media'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 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 U-Tech Media.

Our Take On U-Tech Media's Profit Performance

U-Tech Media issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that U-Tech Media's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. 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. When we did our research, we found 5 warning signs for U-Tech Media (1 is significant!) that we believe deserve your full attention.

Today we've zoomed in on a single data point to better understand the nature of U-Tech Media'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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.