We Think You Should Be Aware Of Some Concerning Factors In Carmel's (TLV:CRML) Earnings

The recent earnings posted by Carmel Corp Ltd. (TLV:CRML) were solid, but the stock didn't move as much as we expected. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

Check out our latest analysis for Carmel

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Carmel issued 13% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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 Carmel's historical EPS growth by clicking on this link.

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

As you can see above, Carmel has been growing its net income over the last few years, with an annualized gain of 141% over three years. In comparison, earnings per share only gained over the same period. And in the last year the company managed to bump profit up by 17%. On the other hand, earnings per share are only up 7.7% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if Carmel can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Carmel.

Our Take On Carmel's Profit Performance

Each Carmel 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 Carmel's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 7.7% EPS growth in the last year. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Be aware that Carmel is showing 4 warning signs in our investment analysis and 2 of those shouldn't be ignored...

Today we've zoomed in on a single data point to better understand the nature of Carmel's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 with significant insider holdings to be useful.

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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.