There May Be Underlying Issues With The Quality Of U-Tech Media's (TWSE:3050) Earnings

Despite posting some strong earnings, the market for U-Tech Media Corporation's (TWSE:3050) stock hasn't moved much. Our analysis suggests that shareholders have noticed something concerning in the numbers.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, U-Tech Media issued 6.2% more new shares over the last year. As a result, its net income is now split between 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.

How Is Dilution Impacting U-Tech Media's Earnings Per Share (EPS)?

Unfortunately, U-Tech Media's profit is down 36% per year over three years. On the bright side, in the last twelve months it grew profit by 17%. On the other hand, earnings per share are only up 11% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if U-Tech Media 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 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 U-Tech Media.

Our Take On U-Tech Media's Profit Performance

U-Tech Media 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 U-Tech Media's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 11% in the last year. 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. Every company has risks, and we've spotted 3 warning signs for U-Tech Media (of which 1 is a bit concerning!) you should know about.

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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.