We Think That There Are Issues Underlying Harvest Miracle Capital Berhad's (KLSE:HM) Earnings
Harvest Miracle Capital Berhad's (KLSE:HM) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.
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To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Harvest Miracle Capital Berhad issued 301% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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 Harvest Miracle Capital Berhad's EPS by clicking here.
Unfortunately, we don't have any visibility into its profits three years back, because we lack the data. The good news is that profit was up 226% in the last twelve months. On the other hand, earnings per share are only up 14% over the same period. So you can see that the dilution has had a fairly significant impact on shareholders.
Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Harvest Miracle Capital Berhad shareholders will want to see that EPS figure continue to increase. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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 Harvest Miracle Capital Berhad.
Harvest Miracle Capital Berhad shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. As a result, we think it may well be the case that Harvest Miracle Capital Berhad's underlying earnings power is lower than its statutory profit. But at least holders can take some solace from the 14% EPS growth in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing Harvest Miracle Capital Berhad at this point in time. To that end, you should learn about the 2 warning signs we've spotted with Harvest Miracle Capital Berhad (including 1 which is concerning).
This note has only looked at a single factor that sheds light on the nature of Harvest Miracle Capital 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. 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.
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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