MMG Limited's (HKG:1208) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that shareholders have noticed something concerning in the numbers.
In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. MMG expanded the number of shares on issue by 40% over the last year. That means its earnings are split among 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 MMG's EPS by clicking here.
A Look At The Impact Of MMG's Dilution On Its Earnings Per Share (EPS)
MMG's net profit dropped by 76% per year over the last three years. On the bright side, in the last twelve months it grew profit by 1,699%. On the other hand, earnings per share are only up 1,374% over the same period. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.
Changes in the share price do tend to reflect changes in earnings per share, in the long run. So MMG 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 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.
That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.
Our Take On MMG's Profit Performance
As we discussed above, MMG's dilution over the last year has a major impact on its per-share earnings. As a result, we think it may well be the case that MMG's underlying earnings power is lower than its statutory profit. 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 MMG as a business, it's important to be aware of any risks it's facing. For example, MMG has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.
Today we've zoomed in on a single data point to better understand the nature of MMG'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. 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.
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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.