Alliance Aviation Services's (ASX:AQZ) Earnings Are Growing But Is There More To The Story?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. In this article, we'll look at how useful this year's statutory profit is, when analysing Alliance Aviation Services (ASX:AQZ).

It's good to see that over the last twelve months Alliance Aviation Services made a profit of AU$23.5m on revenue of AU$290.6m. One positive is that it has grown both its profit and its revenue, over the last few years.

Check out our latest analysis for Alliance Aviation Services

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. In this article we will consider how Alliance Aviation Services's decision to issue new shares in the company has impacted returns to shareholders. 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.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Alliance Aviation Services expanded the number of shares on issue by 26% 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 Alliance Aviation Services's historical EPS growth by clicking on this link.

How Is Dilution Impacting Alliance Aviation Services's Earnings Per Share? (EPS)

As you can see above, Alliance Aviation Services has been growing its net income over the last few years, with an annualized gain of 37% over three years. And over the last 12 months, the company grew its profit by 13%. On the other hand, earnings per share are only up 11% in that time. 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 it will certainly be a positive for shareholders if Alliance Aviation Services can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Our Take On Alliance Aviation Services's Profit Performance

Each Alliance Aviation Services share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Alliance Aviation Services's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 32% per annum growth in EPS for the last three. 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. So while earnings quality is important, it's equally important to consider the risks facing Alliance Aviation Services at this point in time. At Simply Wall St, we found 3 warning signs for Alliance Aviation Services and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Alliance Aviation Services's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying.

If you’re looking to trade Alliance Aviation Services, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account.Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.