Earnings Troubles May Signal Larger Issues for Billington Holdings (LON:BILN) Shareholders

The market wasn't impressed with the soft earnings from Billington Holdings Plc (LON:BILN) recently. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

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One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Billington Holdings issued 5.7% more new shares over the last year. As a result, its net income is now split between 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. You can see a chart of Billington Holdings' EPS by clicking here.

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

Billington Holdings has improved its profit over the last three years, with an annualized gain of 1,109% in that time. In comparison, earnings per share only gained 1,059% over the same period. Net profit actually dropped by 41% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 42%. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if Billington Holdings' earnings per share can increase, then the share price should too. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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.

Our Take On Billington Holdings' Profit Performance

Over the last year Billington Holdings issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that Billington Holdings' true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. At Simply Wall St, we found 2 warning signs for Billington Holdings and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Billington Holdings' 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.