We Think That There Are More Issues For Supergas Energy (TLV:SPGE) Than Just Sluggish Earnings

The subdued market reaction suggests that Supergas Energy Ltd's (TLV:SPGE) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

View our latest analysis for Supergas Energy

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Supergas Energy expanded the number of shares on issue by 8.5% over the last year. 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 Supergas Energy's historical EPS growth by clicking on this link.

How Is Dilution Impacting Supergas Energy's Earnings Per Share? (EPS)

Supergas Energy's net profit dropped by 26% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 25%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 42% in the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If Supergas Energy'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 Supergas Energy.

Our Take On Supergas Energy's Profit Performance

Over the last year Supergas Energy issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that Supergas Energy'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. If you'd like to know more about Supergas Energy as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 4 warning signs for Supergas Energy (of which 1 is a bit concerning!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Supergas Energy'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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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.

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