Pansar Berhad (KLSE:PANSAR) just reported healthy earnings but the stock price didn't move much. Our analysis suggests that investors might be missing some promising details.
Check out our latest analysis for Pansar Berhad
One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Pansar Berhad expanded the number of shares on issue by 9.0% over the last year. Therefore, each share now receives a smaller portion of profit. 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 Pansar Berhad's historical EPS growth by clicking on this link.
How Is Dilution Impacting Pansar Berhad's Earnings Per Share (EPS)?
As you can see above, Pansar Berhad has been growing its net income over the last few years, with an annualized gain of 385% over three years. In comparison, earnings per share only gained 371% over the same period. And the 46% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 43% in that time. 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 it will certainly be a positive for shareholders if Pansar Berhad 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 Pansar Berhad.
The Impact Of Unusual Items On Profit
Alongside that dilution, it's also important to note that Pansar Berhad's profit suffered from unusual items, which reduced profit by RM6.0m in the last twelve months. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If Pansar Berhad doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.
Our Take On Pansar Berhad's Profit Performance
To sum it all up, Pansar Berhad took a hit from unusual items which pushed its profit down; without that, it would have made more money. But on the other hand, the company issued more shares, so without buying more shares each shareholder will end up with a smaller part of the profit. Given the contrasting considerations, we don't have a strong view as to whether Pansar Berhad's profits are an apt reflection of its underlying potential for profit. So while earnings quality is important, it's equally important to consider the risks facing Pansar Berhad at this point in time. Case in point: We've spotted 3 warning signs for Pansar Berhad you should be mindful of and 1 of these doesn't sit too well with us.