Kvutzat Acro's (TLV:ACRO) Shareholders Have More To Worry About Than Only Soft Earnings

A lackluster earnings announcement from Kvutzat Acro Ltd (TLV:ACRO) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

View our latest analysis for Kvutzat Acro

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Kvutzat Acro issued 6.5% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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 Kvutzat Acro's historical EPS growth by clicking on this link.

A Look At The Impact Of Kvutzat Acro's Dilution On Its Earnings Per Share (EPS)

Unfortunately, Kvutzat Acro's profit is down 67% per year over three years. Even looking at the last year, profit was still down 79%. Sadly, earnings per share fell further, down a full 80% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

If Kvutzat Acro's 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Kvutzat Acro.

The Impact Of Unusual Items On Profit

Alongside that dilution, it's also important to note that Kvutzat Acro's profit was boosted by unusual items worth ₪24m in the last twelve months. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. If Kvutzat Acro doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Kvutzat Acro's Profit Performance

In its last report Kvutzat Acro benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. For the reasons mentioned above, we think that a perfunctory glance at Kvutzat Acro's statutory profits might make it look better than it really is on an underlying level. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 5 warning signs for Kvutzat Acro you should be mindful of and 2 of them don't sit too well with us.

Our examination of Kvutzat Acro has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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 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.