Orange Belgium (EBR:OBEL) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

Orange Belgium S.A.'s (EBR:OBEL) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

See our latest analysis for Orange Belgium

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Orange Belgium issued 12% more new shares over the last year. As a result, its net income is now split between a greater number of shares. 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 Orange Belgium's EPS by clicking here.

A Look At The Impact Of Orange Belgium's Dilution On Its Earnings Per Share (EPS)

Orange Belgium's net profit dropped by 44% per year over the last three years. On the bright side, in the last twelve months it grew profit by 50,355%. On the other hand, earnings per share are only up 44,766% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So Orange Belgium shareholders will want to see that EPS figure continue to increase. 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.

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.

The Impact Of Unusual Items On Profit

Alongside that dilution, it's also important to note that Orange Belgium's profit suffered from unusual items, which reduced profit by €20m in the last twelve months. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Orange Belgium to produce a higher profit next year, all else being equal.

Our Take On Orange Belgium's Profit Performance

Orange Belgium suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. But unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Based on these factors, it's hard to tell if Orange Belgium's profits are a reasonable reflection of its underlying profitability. If you'd like to know more about Orange Belgium as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 2 warning signs for Orange Belgium (of which 1 is potentially serious!) you should know about.

Our examination of Orange Belgium has focussed on certain factors that can make its earnings look better than they are. 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. 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.

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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.