We Think That There Are More Issues For Isrotel (TLV:ISRO) Than Just Sluggish Earnings

The subdued market reaction suggests that Isrotel Ltd.'s (TLV:ISRO) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.

Check out our latest analysis for Isrotel

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Isrotel increased the number of shares on issue by 8.8% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. 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. You can see a chart of Isrotel's EPS by clicking here.

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

Three years ago, Isrotel lost money. And even focusing only on the last twelve months, we see profit is down 7.7%. Sadly, earnings per share fell further, down a full 8.5% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

If Isrotel's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 Isrotel.

Our Take On Isrotel's Profit Performance

Isrotel 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 Isrotel'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 while earnings quality is important, it's equally important to consider the risks facing Isrotel at this point in time. You'd be interested to know, that we found 1 warning sign for Isrotel and you'll want to know about this.

Today we've zoomed in on a single data point to better understand the nature of Isrotel's 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 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.