We Think That There Are More Issues For Spectra Systems (LON:SPSY) Than Just Sluggish Earnings

The subdued market reaction suggests that Spectra Systems Corporation's (LON:SPSY) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.

View our latest analysis for Spectra Systems

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Spectra Systems increased the number of shares on issue by 7.0% over the last twelve months by issuing new shares. 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 Spectra Systems' EPS by clicking here.

How Is Dilution Impacting Spectra Systems' Earnings Per Share (EPS)?

As you can see above, Spectra Systems has been growing its net income over the last few years, with an annualized gain of 6.6% over three years. Net income was down 20% over the last twelve months. But the EPS result was even worse, with the company recording a decline of 23%. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Spectra Systems' 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 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 Spectra Systems' Profit Performance

Over the last year Spectra Systems 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 Spectra Systems' statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. 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. You'd be interested to know, that we found 3 warning signs for Spectra Systems and you'll want to know about them.

This note has only looked at a single factor that sheds light on the nature of Spectra Systems' 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.