In This Article:
Despite announcing strong earnings, Soilbuild Construction Group Ltd.'s (SGX:V5Q) stock was sluggish. We did some digging and found some worrying underlying problems.
To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Soilbuild Construction Group increased the number of shares on issue by 12% over the last twelve months by issuing new shares. 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. You can see a chart of Soilbuild Construction Group's EPS by clicking here .
How Is Dilution Impacting Soilbuild Construction Group's Earnings Per Share (EPS)?
Three years ago, Soilbuild Construction Group lost money. The good news is that profit was up 263% in the last twelve months. On the other hand, earnings per share are only up 208% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.
In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Soilbuild Construction Group can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Soilbuild Construction Group .
Our Take On Soilbuild Construction Group's Profit Performance
Each Soilbuild Construction Group share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Soilbuild Construction Group's true underlying earnings power is actually less than its statutory profit. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. While conducting our analysis, we found that Soilbuild Construction Group has 1 warning sign and it would be unwise to ignore it.