Earnings Troubles May Signal Larger Issues for SIR Royalty Income Fund (TSE:SRV.UN) Shareholders

A lackluster earnings announcement from SIR Royalty Income Fund (TSE:SRV.UN) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

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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, SIR Royalty Income Fund issued 6.2% more new shares over the last year. That means its earnings are split among a greater number of shares. 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 SIR Royalty Income Fund's historical EPS growth by clicking on this link.

A Look At The Impact Of SIR Royalty Income Fund's Dilution On Its Earnings Per Share (EPS)

SIR Royalty Income Fund's net profit dropped by 72% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 48%. Sadly, earnings per share fell further, down a full 48% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If SIR Royalty Income Fund's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of SIR Royalty Income Fund.

Our Take On SIR Royalty Income Fund's Profit Performance

Over the last year SIR Royalty Income Fund issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that SIR Royalty Income Fund's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. To help with this, we've discovered 3 warning signs (1 is potentially serious!) that you ought to be aware of before buying any shares in SIR Royalty Income Fund.

Today we've zoomed in on a single data point to better understand the nature of SIR Royalty Income Fund's profit. But there are plenty of other ways to inform your opinion of a company. 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.