Inventronics' (CVE:IVX) Earnings Are Of Questionable Quality

Unsurprisingly, Inventronics Limited's (CVE:IVX) stock price was strong on the back of its healthy earnings report. However, we think that shareholders may be missing some concerning details in the numbers.

See our latest analysis for Inventronics

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Inventronics expanded the number of shares on issue by 9.1% over the last year. As a result, its net income is now split between 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 Inventronics' EPS by clicking here.

How Is Dilution Impacting Inventronics' Earnings Per Share? (EPS)

Three years ago, Inventronics lost money. The good news is that profit was up 187% in the last twelve months. On the other hand, earnings per share are only up 180% over the same period. So you can see that the dilution has had a bit of an 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 Inventronics 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 Inventronics.

Our Take On Inventronics' Profit Performance

Inventronics shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Inventronics' statutory profits are better than its underlying earnings power. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you'd like to know more about Inventronics as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 5 warning signs for Inventronics you should be mindful of and 1 of them is a bit concerning.

Today we've zoomed in on a single data point to better understand the nature of Inventronics' 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.

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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