Impressive Earnings May Not Tell The Whole Story For Ideal Holdings (ATH:INTEK)

Ideal Holdings S.A.'s (ATH:INTEK) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

See our latest analysis for Ideal Holdings

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Ideal Holdings expanded the number of shares on issue by 42% over the last year. Therefore, each share now receives a smaller portion of profit. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. Check out Ideal Holdings' historical EPS growth by clicking on this link.

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

As you can see above, Ideal Holdings has been growing its net income over the last few years, with an annualized gain of 1,910% over three years. But EPS was only up 291% per year, in the exact same period. And at a glance the 352% gain in profit over the last year impresses. On the other hand, earnings per share are only up 247% in that time. So you can see that the dilution has had a fairly significant impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So Ideal Holdings shareholders will want to see that EPS figure continue to increase. 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 Ideal Holdings' Profit Performance

As we discussed above, Ideal Holdings' dilution over the last year has a major impact on its per-share earnings. For this reason, we think that Ideal Holdings' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To help with this, we've discovered 2 warning signs (1 is significant!) that you ought to be aware of before buying any shares in Ideal Holdings.

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