Earnings Troubles May Signal Larger Issues for EITA Resources Berhad

The market wasn’t impressed with the soft earnings from EITA Resources Berhad (KLSE:EITA) recently. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

Check out 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. In fact, EITA Resources Berhad increased the number of shares on issue by 16% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. Check out EITA Resources Berhad’s historical EPS growth by clicking on this link.

EITA Resources Berhad’s net profit dropped by 53% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 10%. Sadly, earnings per share fell further, down a full 19% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if EITA Resources Berhad’s earnings per share can increase, then the share price should too. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of EITA Resources Berhad.

Over the last year EITA Resources Berhad issued new shares and so, there’s a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that EITA Resources Berhad’s true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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, EITA Resources Berhad has 4 warning signs (and 1 which is a bit concerning) we think you should know about.

Today we’ve zoomed in on a single data point to better understand the nature of EITA Resources Berhad’s profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to ‘follow the money’ and search out stocks that insiders are buying. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be…