Wistron NeWeb's (TWSE:6285) Shareholders Have More To Worry About Than Only Soft Earnings

The subdued market reaction suggests that Wistron NeWeb Corporation's (TWSE:6285) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

Check out our latest analysis for Wistron NeWeb

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Wistron NeWeb issued 16% more new shares over the last year. 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 Wistron NeWeb's historical EPS growth by clicking on this link.

A Look At The Impact Of Wistron NeWeb's Dilution On Its Earnings Per Share (EPS)

As you can see above, Wistron NeWeb has been growing its net income over the last few years, with an annualized gain of 166% over three years. In comparison, earnings per share only gained 122% over the same period. Net profit actually dropped by 17% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 27%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if Wistron NeWeb'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.

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

Over the last year Wistron NeWeb issued new shares and so, there's a noteworthy divergence between EPS and net income growth. 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. For example - Wistron NeWeb has 2 warning signs we think you should be aware of.

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. 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. 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.