Shareholders In Aberdeen Standard European Logistics Income (LON:ASLI) Should Look Beyond Earnings For The Full Story

We didn't see Aberdeen Standard European Logistics Income PLC's (LON:ASLI) stock surge when it reported robust earnings recently. We looked deeper into the numbers and found that shareholders might be concerned with some underlying weaknesses.

View our latest analysis for Aberdeen Standard European Logistics Income

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Aberdeen Standard European Logistics Income issued 12% 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 Aberdeen Standard European Logistics Income's historical EPS growth by clicking on this link.

A Look At The Impact Of Aberdeen Standard European Logistics Income's Dilution on Its Earnings Per Share (EPS).

We don't have any data on the company's profits from three years ago. On the bright side, in the last twelve months it grew profit by 77%. But EPS was less impressive, up only 54% in that time. 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 Aberdeen Standard European Logistics Income shareholders will want to see that EPS figure continue to increase. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Aberdeen Standard European Logistics Income.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Aberdeen Standard European Logistics Income's profit was boosted by unusual items worth €33m in the last twelve months. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Aberdeen Standard European Logistics Income's positive unusual items were quite significant relative to its profit in the year to December 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Aberdeen Standard European Logistics Income's Profit Performance

In its last report Aberdeen Standard European Logistics Income benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. Considering all this we'd argue Aberdeen Standard European Logistics Income's profits probably give an overly generous impression of its sustainable level of profitability. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. When we did our research, we found 4 warning signs for Aberdeen Standard European Logistics Income (1 is concerning!) that we believe deserve your full attention.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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. 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.

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This article by Simply Wall St is general in nature. 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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