Are Amos Luzon Development and Energy Group's (TLV:LUZN) Statutory Earnings A Good Reflection Of Its Earnings Potential?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. In this article, we'll look at how useful this year's statutory profit is, when analysing Amos Luzon Development and Energy Group (TLV:LUZN).

While Amos Luzon Development and Energy Group was able to generate revenue of ₪891.8m in the last twelve months, we think its profit result of ₪26.9m was more important. Even though revenue is down over the last three years, you can see in the chart below that the company has moved from loss-making to profitable.

See our latest analysis for Amos Luzon Development and Energy Group

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. In this article we will consider how Amos Luzon Development and Energy Group's decision to issue new shares in the company has impacted returns to shareholders. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Amos Luzon Development and Energy Group.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Amos Luzon Development and Energy Group increased the number of shares on issue by 9.3% 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. Check out Amos Luzon Development and Energy Group's historical EPS growth by clicking on this link.

A Look At The Impact Of Amos Luzon Development and Energy Group's Dilution on Its Earnings Per Share (EPS).

Three years ago, Amos Luzon Development and Energy Group lost money. And even focusing only on the last twelve months, we see profit is down 65%. Sadly, earnings per share fell further, down a full 65% in that time. So you can see that the dilution has had a bit of an impact on shareholders. Therefore, the dilution is having a noteworthy influence on shareholder returns. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if Amos Luzon Development and Energy Group's earnings per share can increase, then the share price should too. 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.

Our Take On Amos Luzon Development and Energy Group's Profit Performance

Amos Luzon Development and Energy Group issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that Amos Luzon Development and Energy Group's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For instance, we've identified 5 warning signs for Amos Luzon Development and Energy Group (1 shouldn't be ignored) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Amos Luzon Development and Energy 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 that insiders are buying.

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This article by Simply Wall St is general in nature. 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.
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