We Think Shareholders Should Be Aware Of Some Factors Beyond Navitas Petroleum Limited Partnership's (TLV:NVPT.L) Profit

Navitas Petroleum, Limited Partnership (TLV:NVPT.L) recently released a strong earnings report, and the market responded by raising the share price. However, we think that shareholders should be aware of some other factors beyond the profit numbers.

View our latest analysis for Navitas Petroleum Limited Partnership

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Navitas Petroleum Limited Partnership increased the number of shares on issue by 53% over the last twelve months by issuing new shares. As a result, its net income is now split between 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. Check out Navitas Petroleum Limited Partnership's historical EPS growth by clicking on this link.

A Look At The Impact Of Navitas Petroleum Limited Partnership's Dilution on Its Earnings Per Share (EPS).

Three years ago, Navitas Petroleum Limited Partnership lost money. Zooming in to the last year, we still can't talk about growth rates coherently, since it made a loss last year. But mathematics aside, it is always good to see when a formerly unprofitable business come good (though we accept profit would have been higher if dilution had not been required). And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, if Navitas Petroleum Limited Partnership's earnings per share can increase, then the share price should too. 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 Navitas Petroleum Limited Partnership.

How Do Unusual Items Influence Profit?

Finally, we should also consider the fact that unusual items boosted Navitas Petroleum Limited Partnership's net profit by US$2.1m over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On Navitas Petroleum Limited Partnership's Profit Performance

In its last report Navitas Petroleum Limited Partnership benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. For the reasons mentioned above, we think that a perfunctory glance at Navitas Petroleum Limited Partnership's statutory profits might make it look better than it really is on an underlying level. If you'd like to know more about Navitas Petroleum Limited Partnership as a business, it's important to be aware of any risks it's facing. For example, we've found that Navitas Petroleum Limited Partnership has 3 warning signs (2 are a bit unpleasant!) that deserve your attention before going any further with your analysis.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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 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.