Why ALD's (EPA:ALD) Shaky Earnings Are Just The Beginning Of Its Problems

The market wasn't impressed with the soft earnings from ALD S.A. (EPA:ALD) recently. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

Check out our latest analysis for ALD

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, ALD issued 44% more new shares over the last year. That means its earnings are split among 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. Check out ALD's historical EPS growth by clicking on this link.

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

ALD has improved its profit over the last three years, with an annualized gain of 70% in that time. In contrast, earnings per share were actually down by 3.7% per year, in the exact same period. Net income was down 30% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 56%. So you can see that the dilution has had a fairly significant impact on shareholders.

If ALD'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.

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.

Our Take On ALD's Profit Performance

ALD issued shares during the year, and that means its EPS performance lags its net income growth. As a result, we think it may well be the case that ALD's underlying earnings power is lower than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. If you want to do dive deeper into ALD, you'd also look into what risks it is currently facing. Our analysis shows 4 warning signs for ALD (1 shouldn't be ignored!) and we strongly recommend you look at them before investing.

Today we've zoomed in on a single data point to better understand the nature of ALD's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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 that insiders are buying 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.