Baran Group (TLV:BRAN) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

Baran Group Ltd's (TLV:BRAN) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that shareholders have noticed something concerning in the numbers.

Check out our latest analysis for Baran Group

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Baran Group expanded the number of shares on issue by 17% 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. You can see a chart of Baran Group's EPS by clicking here.

How Is Dilution Impacting Baran Group's Earnings Per Share (EPS)?

As you can see above, Baran Group has been growing its net income over the last few years, with an annualized gain of 247% over three years. But EPS was only up 236% per year, in the exact same period. And the 173% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 174% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Baran Group 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 Baran Group.

Our Take On Baran Group's Profit Performance

Each Baran Group share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Baran Group's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate 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. So while earnings quality is important, it's equally important to consider the risks facing Baran Group at this point in time. At Simply Wall St, we found 2 warning signs for Baran Group and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Baran Group's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.