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A lackluster earnings announcement from UMS Holdings Limited (SGX:558) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.
View our latest analysis for UMS Holdings
One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. UMS Holdings expanded the number of shares on issue by 6.0% over the last year. That means its earnings are split among 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 UMS Holdings' EPS by clicking here.
A Look At The Impact Of UMS Holdings' Dilution On Its Earnings Per Share (EPS)
As you can see above, UMS Holdings has been growing its net income over the last few years, with an annualized gain of 7.9% over three years. Net profit actually dropped by 43% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 44%. So you can see that the dilution has had a bit of an impact on shareholders.
If UMS Holdings' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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.
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 UMS Holdings' Profit Performance
UMS Holdings issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that UMS Holdings' true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of UMS Holdings.