The recent earnings posted by PGF Capital Berhad (KLSE:PGF) were solid, but the stock didn't move as much as we expected. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.
See our latest analysis for PGF Capital Berhad
One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, PGF Capital Berhad issued 19% 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 PGF Capital Berhad's historical EPS growth by clicking on this link.
A Look At The Impact Of PGF Capital Berhad's Dilution On Its Earnings Per Share (EPS)
As you can see above, PGF Capital Berhad has been growing its net income over the last few years, with an annualized gain of 200% over three years. In comparison, earnings per share only gained 181% over the same period. And at a glance the 24% gain in profit over the last year impresses. But in comparison, EPS only increased by 18% 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 PGF Capital Berhad 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 PGF Capital Berhad's Profit Performance
PGF Capital Berhad 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 PGF Capital Berhad's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. In terms of investment risks, we've identified 2 warning signs with PGF Capital Berhad, and understanding these should be part of your investment process.