Nextgreen Global Berhad's (KLSE:NGGB) Promising Earnings May Rest On Soft Foundations
Despite posting some strong earnings, the market for Nextgreen Global Berhad's (KLSE:NGGB) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.
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One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Nextgreen Global Berhad expanded the number of shares on issue by 5.2% over the last year. 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 Nextgreen Global Berhad's historical EPS growth by clicking on this link.
As you can see above, Nextgreen Global Berhad has been growing its net income over the last few years, with an annualized gain of 158% over three years. In comparison, earnings per share only gained 72% over the same period. And at a glance the 141% gain in profit over the last year impresses. But in comparison, EPS only increased by 98% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.
Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if Nextgreen Global Berhad can grow EPS persistently. 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 Nextgreen Global Berhad.
Nextgreen Global Berhad shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that Nextgreen Global Berhad's true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. While it's very important to consider the profit and loss statement, you can also learn a lot about a company by looking at its balance sheet. You can see our latest analysis on Nextgreen Global Berhad's balance sheet health here.
Today we've zoomed in on a single data point to better understand the nature of Nextgreen Global 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. 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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