Pocket Option: Analysis of diluted earnings per share for the Vietnamese market
Diluted earnings per share is an essential tool helping Vietnamese investors detect potential risks that ordinary indicators don't reveal. When VNM had a 12% difference between basic and diluted earnings in Q2/2023, investors who grasped this information avoided the price shock that followed. This article will decode in detail the calculation method, meaning, and practical application of this indicator in the context of Vietnam's volatile stock market.
What is diluted earnings per share?
Diluted earnings per share is an important financial indicator reflecting a company's profit per share after accounting for all financial instruments that can be converted into common stock. A specific example: when Vinhomes (VHM) reported basic earnings of 4,800 dong/share but diluted earnings of only 4,100 dong/share in 2023, this warned of the potential dilution of shareholder benefits up to 14.6% in the future.
In Vietnam, as more and more listed companies use stock options, convertible bonds, and warrants to raise capital, diluted earnings per share becomes a necessary measure for smart investors. In fact, the number of companies with a difference of more than 5% between these two indicators has increased from 27 companies in 2020 to 62 companies in 2023.
Pocket Option provides Vietnamese investors with automatic monitoring and alert tools when detecting unusual differences between basic and diluted earnings per share. According to data from this platform, 78% of stocks with a sudden difference of more than 15% typically experience a price adjustment in the following 3 months, clarifying the importance of monitoring this indicator.
| Dilution Factor | Impact on diluted earnings per share | Real examples in Vietnam |
|---|---|---|
| Stock options | Increases potential number of shares, reduces EPS | FPT with ESOP program 2022-2025 for 960 senior personnel |
| Convertible bonds | Creates new shares when converted, dilutes earnings | VIC issued $500 million international convertible bonds in Q3/2023 |
| Convertible preferred stock | Increases potential number of common shares | SSI issued preferred shares to foreign strategic partners |
| Warrants | Rights to purchase shares in the future, increasing share count | HPG issued warrants along with bonds in 2022 |
The difference between basic earnings per share and diluted earnings per share
To understand diluted earnings per share, you need to distinguish it from basic earnings per share. At Masan Group (MSN), in 2023 basic earnings reached 3,560 dong/share but diluted earnings were only 3,120 dong/share due to the impact of convertible bonds worth $200 million issued to SK Group. This 12.4% difference directly affects the company's real P/E valuation.
The difference between basic earnings per share and diluted earnings per share is especially important for Vietnamese technology companies like FPT, VNG, and startups preparing for IPOs. At FPT, the ESOP program 2022-2025 with a scale of up to 0.5% of charter capital each year has created a 6.9% gap between these two indicators, which many individual investors often overlook.
- Basic earnings per share = 5,800 dong (FPT, 2023) = 7,822 billion dong ÷ 1,348 million shares
- Diluted earnings per share = 5,400 dong (FPT, 2023) = 7,822 billion dong ÷ (1,348 million + 99 million potential shares)
- Real impact: Investors calculating P/E based on basic earnings will value FPT 6.9% cheaper than its actual value
| Aspect | Basic earnings per share | Diluted earnings per share | Meaning for Vietnamese investors |
|---|---|---|---|
| Definition | Net profit divided by number of outstanding shares | Net profit divided by total outstanding and potential shares | Understanding the nature to avoid overly optimistic assessments |
| Number of shares | Only counts outstanding shares | Counts both outstanding and potential shares | Analyze future dilution potential |
| Level of conservatism | Lower, potentially too optimistic | Higher, more cautious | Aligns with cautious value investing philosophy |
| Industries where most applied | Banking, traditional real estate | Technology, renewable energy, startups | Especially important when investing in emerging industries |
In the context of Vietnam's market, as listed companies increasingly use diverse financial instruments, diluted earnings per share becomes an indicator that cannot be ignored. Pocket Option provides an automatic comparison tool between these two indicators for all 1,600+ listed stocks, helping investors identify companies with high dilution risk.
How to calculate diluted earnings per share for Vietnamese stocks
Calculating diluted earnings per share for Vietnamese stocks requires a specific method suitable for how information is disclosed in this market. Unlike developed markets, many Vietnamese companies do not automatically publish diluted earnings in financial reports, placing the calculation burden on investors.
| Step | Description | Real example: VinGroup (VIC) |
|---|---|---|
| 1 | Determine the company's net profit | VIC: 4,515 billion dong (2023) |
| 2 | Identify the number of common shares outstanding | 3,382 million shares (as of 31/12/2023) |
| 3 | Identify convertible financial instruments | International bonds: $500 million, conversion ratio 1:23,594 shares |
| 4 | Calculate total potential shares | 3,382 + ($500 million × 23,594 ÷ 24,580 dong) = 3,382 + 480 = 3,862 million shares |
| 5 | Calculate diluted earnings per share | 4,515 billion ÷ 3,862 million = 1,169 dong/share (compared to basic earnings of 1,335 dong) |
Factors affecting diluted earnings per share
When analyzing diluted earnings per share of Vietnamese companies, attention should be paid to the following specific factors:
- ESOP programs booming in Vietnam: In 2023, 43 listed companies implemented ESOPs with a total value of 5,872 billion dong, up 28% compared to 2022
- International convertible bonds: "Big players" like VIC, MSN, NVL have raised billions of USD through this channel with more complex conversion terms than the domestic market
- Private placements to strategic partners: Many businesses include additional purchase rights (warrants) for institutional investors
- Vietnamese accounting specifics: Circular 202/2014/TT-BTC does not mandate details on diluted earnings like IFRS standards
Tools for calculating diluted earnings per share
Pocket Option has developed specialized tools for the Vietnamese market, helping to automatically calculate diluted earnings per share with high accuracy. This tool analyzes both official data from reports and information from shareholder meeting minutes, financial statement notes to ensure no dilution factor is missed.
In particular, this platform provides a visual comparison function between companies in the same industry:
| Important information source | Data to collect | How to access via Pocket Option |
|---|---|---|
| Consolidated financial statements | Net profit, number of outstanding shares | Data automatically updated quarterly for 100% of listed stocks |
| Financial statement notes | Information on convertible bonds, options | Smart extraction and context analysis from PDF files |
| Corporate governance reports | Details on ESOP programs and issuance plans | Alerts when new ESOP information is detected |
| Shareholder meeting resolutions | Plans to issue new shares, stock dividends | Updated within 24 hours after announcement |
Significance of diluted earnings per share in investment analysis
Diluted earnings per share is not just an accounting number but also a strategic indicator of corporate governance and financial strategy. In Vietnam, companies with a high difference between basic and diluted earnings per share usually fall into one of two groups: those in a rapid expansion phase or those facing financial difficulties having to use complex financial instruments to raise capital.
A typical example is Novaland (NVL). During 2021-2023, the difference between these two indicators increased from 3.2% to 18.7%, reflecting the company's increasing reliance on convertible bonds and complex financial instruments. Investors using the Pocket Option platform received warnings about this trend from Q3/2022, before the stock price adjusted sharply in early 2023.
| Practical application | Specific examples in Vietnam's market | Benefits for investors |
|---|---|---|
| More accurate stock valuation | VHM: P/E based on basic earnings = 12.8x, actual P/E = 14.6x (2023) | Avoid misjudging how "cheap" a stock is |
| Detecting potential financial risks | NVL: Difference increased from 3.2% to 18.7% (2021-2023) | Early warning of increasing financial pressure |
| Evaluating growth strategies | MWG: 8.3% difference due to ESOP for BachhoaXANH and TopzoneVN | Understand the real cost of expansion strategy |
| Fair comparison between companies | VPB vs TCB: Difference 9.2% vs 2.1% in the same banking industry | Detect which bank uses more complex financial instruments |
Investment strategies based on diluted earnings per share
Analyzing diluted earnings per share opens up many effective investment strategies in the Vietnamese market. Data from Pocket Option shows that during 2020-2023, portfolios of stocks with low differences (below 3%) between basic and diluted earnings outperformed VN-Index by 7.2% per year after risk adjustment.
Value investment strategy using diluted earnings per share
Value investors in Vietnam can apply stock screening methods based on the difference between these two indicators. For example: ACB and VCB had the same basic P/E of about 15x in early 2024, but in terms of P/E based on diluted earnings, ACB was actually cheaper due to a difference of only 1.8% compared to 4.7% for VCB.
- The 5-10-15 rule: Be vigilant with stocks having differences >15%, cautious with 10-15%, and prioritize considering stocks below 5%
- Detailed analysis of dilution reasons - ESOP for growth strategy (positive) differs from convertible bonds for debt restructuring (negative)
- Compare profit growth rate with dilution rate - TCB maintained 20% profit growth while dilution was only 2-3% annually
- Monitor the trend of differences over 8 consecutive quarters rather than looking at just one point in time
Combining diluted earnings per share with technical analysis
Professional traders on Pocket Option share that they have developed trading strategies combining diluted earnings per share analysis with technical indicators. Particularly effective is the method of detecting divergence between price trends and EPS difference trends.
Specific strategies include:
| Strategy | Implementation method | Successful examples in Vietnam |
|---|---|---|
| EPS Divergence Strategy | Buy when price decreases but EPS difference narrows, sell when vice versa | HPG Q4/2022: Price dropped 20% but EPS difference narrowed from 8.2% to 4.4%, then price increased 68% in 6 months |
| Earnings Surprise Analysis | Evaluate the surprise level of reports based on diluted earnings instead of basic earnings | FPT Q1/2023: Exceeded forecast by 3% in basic earnings but 8% in diluted earnings due to reduced ESOP |
| Sector Rotation | Shift investments between sectors based on EPS difference trends | Rotation from real estate (increasing difference) to banking (decreasing difference) in Q3/2022 |
| Pre-Conversion Strategy | Analyze when convertible bonds mature to predict selling pressure | MSN Q2/2023: Sold before $100 million convertible bonds matured and created selling pressure |
Diluted earnings per share and other financial indicators
Smart investors need to combine diluted earnings per share analysis with other financial indicators for a comprehensive view. Pocket Option has developed an integrated scoring system evaluating Vietnamese stocks based on 15 indicators, in which diluted earnings per share plays an important role.
Below is how to effectively combine analysis:
| Combined indicator | Effective analysis method | Warning threshold for Vietnamese investors |
|---|---|---|
| P/E based on diluted earnings | Calculate real P/E as price ÷ diluted earnings per share | Difference with industry average P/E >20% needs thorough investigation |
| Adjusted PEG | (P/E based on diluted earnings) ÷ 3-year growth rate | Adjusted PEG >1.5 shows high valuation, <0.8 may be an opportunity |
| ROE and EPS difference | Compare ROE with difference between basic and diluted earnings | ROE <15% and EPS difference >10% is a strong warning signal |
| Adjusted dividend payout ratio | Dividend per share ÷ diluted earnings per share | Ratio >75% risks not being sustainable in the long run |
Professional analysts at Pocket Option also use quantitative models to measure the impact of EPS differences on stock price volatility. Their research on the Vietnamese market during 2019-2023 shows that each 1% increase in EPS difference not recognized by the market will lead to a 0.8% price adjustment probability in the following 60 trading days.
Notably, when compared with other markets in the ASEAN region, the reaction of Vietnam's market to information about diluted earnings per share is slower and not completely efficient. This creates opportunities for investors who obtain this information early to have a significant advantage.
Case studies: Diluted earnings per share at Vietnamese listed companies
Detailed analysis of some typical cases in the Vietnamese market will help investors better understand the practical importance of diluted earnings per share. Research from Pocket Option has tracked changes in this indicator at the 50 largest capitalization companies over the past 3 years with notable findings.
Case 1: Vingroup (VIC) - Lessons on international convertible bonds
VIC is a typical example of a company using multiple international convertible bond issuances. In Q3/2023, the company issued $500 million convertible bonds with an interest rate of only 3.25% but with conversion rights into shares at a premium of 15% over the market price. Immediately, diluted earnings per share decreased by 16% compared to basic earnings, but the market reacted slowly to this information.
| Company | Basic earnings per share (2023) | Diluted earnings per share (2023) | Difference (%) | Impact on actual valuation |
|---|---|---|---|---|
| Vingroup (VIC) | 1,335 dong | 1,169 dong | 16.0% | Actual P/E 16% higher than reported in standard reports |
| FPT Corp (FPT) | 5,805 dong | 5,429 dong | 6.9% | Stable difference over years, reflecting sustainable ESOP |
| Vietcombank (VCB) | 5,274 dong | 5,163 dong | 2.1% | Low dilution level, reflecting cautious capital management |
| Novaland (NVL) | 1,208 dong | 1,017 dong | 18.7% | High and rapidly increasing dilution, warning of financial pressure |
Case 2: Comparing FPT and VNG (preparing for IPO)
FPT and VNG represent two different ESOP program management models. FPT maintains a stable difference of 6-7% between basic and diluted earnings per share, reflecting a transparent and sustainable ESOP policy. In contrast, VNG (expected IPO in 2025) has a difference of up to 12.8% due to a very large stock option program for employees and leadership.
According to Pocket Option's analysis, companies with stable differences like FPT typically provide better long-term returns for shareholders than companies with large fluctuations in this indicator. This reflects a philosophy of balance between employee benefits and existing shareholder interests.
Conclusion
Diluted earnings per share is not just a simple accounting figure but a key helping Vietnamese investors accurately assess the true value of stocks. In an increasingly complex market context with various financial instruments, this indicator becomes a "shield" protecting investors from overly optimistic assessments and early detection of potential risks.
Research by Pocket Option on 1,600+ listed stocks in Vietnam during 2020-2023 shows that 76% of companies with a sudden increase in EPS difference (>10%) in two consecutive quarters experienced significant price adjustments in the following 6 months. This is a figure that serious investors cannot ignore.
To apply knowledge about diluted earnings per share to practical investing, Vietnamese investors should:
- Always calculate and compare both basic and diluted earnings per share when evaluating P/E
- Monitor the trend of changes in the difference between these two indicators over time
- Carefully study the reasons behind high differences (>10%)
- Use in-depth analysis tools like the Pocket Option platform to systematically monitor this indicator
- Combine diluted earnings per share analysis with other financial indicators for a comprehensive view
Finally, diluted earnings per share is a powerful tool helping investors see through the flashy numbers on financial reports and accurately assess the intrinsic value of businesses. In Vietnam's developing market, those who master and effectively apply this knowledge will have a competitive advantage over the rest of the market.