A lackluster earnings announcement from EITA Resources Berhad (KLSE:EITA) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.
See our latest analysis for EITA Resources Berhad
To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. EITA Resources Berhad expanded the number of shares on issue by 11% 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 EITA Resources Berhad's historical EPS growth by clicking on this link.
How Is Dilution Impacting EITA Resources Berhad's Earnings Per Share (EPS)?
Unfortunately, EITA Resources Berhad's profit is down 53% per year over three years. And even focusing only on the last twelve months, we see profit is down 10%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 19% in the same period. So you can see that the dilution has had a bit of an impact on shareholders.
If EITA Resources Berhad's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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 EITA Resources Berhad.
Our Take On EITA Resources Berhad's Profit Performance
Over the last year EITA Resources Berhad 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 EITA Resources Berhad's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, we've found that EITA Resources Berhad has 3 warning signs (1 is potentially serious!) that deserve your attention before going any further with your analysis.