JAKS Resources Berhad (KLSE:JAKS) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of
Unsurprisingly, JAKS Resources Berhad's (KLSE:JAKS) stock price was strong on the back of its healthy earnings report. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.
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In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, JAKS Resources Berhad issued 11% more new shares over the last year. That means its earnings are split among a greater number of shares. 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 JAKS Resources Berhad's historical EPS growth by clicking on this link.
As you can see above, JAKS Resources Berhad has been growing its net income over the last few years, with an annualized gain of 10% over three years. But on the other hand, earnings per share actually fell by 17% per year. And at a glance the 241% gain in profit over the last year impresses. But in comparison, EPS only increased by 202% over the same period. So you can see that the dilution has had a bit of an impact on shareholders.
In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if JAKS Resources Berhad can grow EPS persistently. 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 JAKS Resources Berhad.
JAKS Resources 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 JAKS Resources Berhad's statutory profits are better than its underlying earnings power. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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. If you'd like to know more about JAKS Resources Berhad as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 3 warning signs for JAKS Resources Berhad and we think they deserve your attention.
Today we've zoomed in on a single data point to better understand the nature of JAKS Resources Berhad's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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