There May Be Underlying Issues With The Quality Of Wistron NeWeb's (TWSE:6285) Earnings

Unsurprisingly, Wistron NeWeb Corporation's (TWSE:6285) stock price was strong on the back of its healthy earnings report. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.

Check out our latest analysis for Wistron NeWeb

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Wistron NeWeb increased the number of shares on issue by 22% over the last twelve months by issuing new shares. 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. You can see a chart of Wistron NeWeb's EPS by clicking here.

How Is Dilution Impacting Wistron NeWeb's Earnings Per Share (EPS)?

Wistron NeWeb has improved its profit over the last three years, with an annualized gain of 159% in that time. But EPS was only up 139% per year, in the exact same period. And at a glance the 22% gain in profit over the last year impresses. On the other hand, earnings per share are only up 13% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Wistron NeWeb shareholders will want to see that EPS figure continue to increase. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 Wistron NeWeb's Profit Performance

Wistron NeWeb shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Wistron NeWeb's statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. 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. So while earnings quality is important, it's equally important to consider the risks facing Wistron NeWeb at this point in time. At Simply Wall St, we found 2 warning signs for Wistron NeWeb and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Wistron NeWeb's profit. But there are plenty of other ways to inform your opinion of a company. 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 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.