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

A lackluster earnings announcement from Ideal Holdings S.A. (ATH:INTEK) 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.

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To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Ideal Holdings expanded the number of shares on issue by 13% 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. 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 101% over three years. But EPS was only up 33% per year, in the exact same period. While we did see a very small decrease, net profit was basically flat over the last year. In contrast, earnings per share are actually down a full 3.7%, over the last twelve months. So you can see that the dilution has had a bit of an impact on shareholders.

If Ideal Holdings' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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

Ideal Holdings issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Ideal Holdings' true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 33% over the last three years. 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. While it's really important to consider how well a company's statutory earnings represent its true earnings power, it's also worth taking a look at what analysts are forecasting for the future. So feel free to check out our free graph representing analyst forecasts.

Today we've zoomed in on a single data point to better understand the nature of Ideal Holdings' profit. But there are plenty of other ways to inform your opinion of a company. 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.