We Think That There Are More Issues For TClarke (LON:CTO) Than Just Sluggish Earnings

A lackluster earnings announcement from TClarke plc (LON:CTO) 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.

View our latest analysis for TClarke

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. TClarke expanded the number of shares on issue by 20% 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. Check out TClarke's historical EPS growth by clicking on this link.

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

As you can see above, TClarke has been growing its net income over the last few years, with an annualized gain of 442% over three years. But EPS was only up 386% per year, in the exact same period. Net income was down 23% over the last twelve months. But the EPS result was even worse, with the company recording a decline of 29%. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if TClarke's earnings per share can increase, then the share price should too. 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 TClarke's Profit Performance

Over the last year TClarke 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 TClarke's statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've discovered 3 warning signs that you should run your eye over to get a better picture of TClarke.

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