Taiwan Cogeneration's (TWSE:8926) Earnings May Just Be The Starting Point

The subdued stock price reaction suggests that Taiwan Cogeneration Corporation's (TWSE:8926) strong earnings didn't offer any surprises. Our analysis suggests that investors might be missing some promising details.

Check out our latest analysis for Taiwan Cogeneration

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Taiwan Cogeneration expanded the number of shares on issue by 17% over the last year. Therefore, each share now receives a smaller portion of profit. 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. You can see a chart of Taiwan Cogeneration's EPS by clicking here.

How Is Dilution Impacting Taiwan Cogeneration's Earnings Per Share (EPS)?

As you can see above, Taiwan Cogeneration has been growing its net income over the last few years, with an annualized gain of 17% over three years. In comparison, earnings per share only gained 6.5% over the same period. And the 38% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 27% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Taiwan Cogeneration can grow EPS persistently. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Taiwan Cogeneration.

The Impact Of Unusual Items On Profit

Alongside that dilution, it's also important to note that Taiwan Cogeneration's profit suffered from unusual items, which reduced profit by NT$20m in the last twelve months. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. Taiwan Cogeneration took a rather significant hit from unusual items in the year to December 2023. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Our Take On Taiwan Cogeneration's Profit Performance

To sum it all up, Taiwan Cogeneration took a hit from unusual items which pushed its profit down; without that, it would have made more money. But unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Considering all the aforementioned, we'd venture that Taiwan Cogeneration's profit result is a pretty good guide to its true profitability, albeit a bit on the conservative side. If you'd like to know more about Taiwan Cogeneration as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 2 warning signs for Taiwan Cogeneration you should be mindful of and 1 of these doesn't sit too well with us.

Our examination of Taiwan Cogeneration has focussed on certain factors that can make its earnings look better than they are. 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 that insiders are buying.

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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.