HCK Capital Group Berhad's (KLSE:HCK) Weak Earnings May Only Reveal A Part Of The Whole Picture

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2 days ago

The subdued market reaction suggests that HCK Capital Group Berhad's (KLSE:HCK) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the 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. In fact, HCK Capital Group Berhad increased the number of shares on issue by 15% over the last twelve months by issuing new shares. As a result, its net income is now split between a greater number of shares. 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. You can see a chart of HCK Capital Group Berhad's EPS by clicking here.
HCK Capital Group Berhad has improved its profit over the last three years, with an annualized gain of 605% in that time. In comparison, earnings per share only gained 450% over the same period. Net income was down 51% over the last twelve months. But the EPS result was even worse, with the company recording a decline of 56%. And so, you can see quite clearly that dilution is influencing shareholder earnings.
If HCK Capital Group Berhad's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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 HCK Capital Group Berhad.
Over the last year HCK Capital Group Berhad issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that HCK Capital Group Berhad's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of HCK Capital Group Berhad.
This note has only looked at a single factor that sheds light on the nature of HCK Capital Group Berhad's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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 useful.
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