Investors Shouldn't Be Too Comfortable With Taiflex Scientific's (TWSE:8039) Earnings

Despite posting some strong earnings, the market for Taiflex Scientific Co., Ltd.'s (TWSE:8039) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

See our latest analysis for Taiflex Scientific

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Taiflex Scientific increased the number of shares on issue by 6.9% over the last twelve months by issuing new shares. 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. You can see a chart of Taiflex Scientific's EPS by clicking here.

How Is Dilution Impacting Taiflex Scientific's Earnings Per Share (EPS)?

Taiflex Scientific's net profit dropped by 24% per year over the last three years. The good news is that profit was up 65% in the last twelve months. On the other hand, earnings per share are only up 60% over the same period. 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 Taiflex Scientific shareholders will want to see that EPS figure continue to increase. 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.

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 Taiflex Scientific's Profit Performance

Taiflex Scientific 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 Taiflex Scientific's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 60% 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. So while earnings quality is important, it's equally important to consider the risks facing Taiflex Scientific at this point in time. Every company has risks, and we've spotted 4 warning signs for Taiflex Scientific (of which 1 is potentially serious!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Taiflex Scientific'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.