Solid Earnings May Not Tell The Whole Story For Polyram Plastic Industries (TLV:POLP)

The market for Polyram Plastic Industries LTD's (TLV:POLP) stock was strong after it released a healthy earnings report last week. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

See our latest analysis for Polyram Plastic Industries

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Polyram Plastic Industries expanded the number of shares on issue by 6.9% over the last year. 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 Polyram Plastic Industries' EPS by clicking here.

A Look At The Impact Of Polyram Plastic Industries' Dilution On Its Earnings Per Share (EPS)

Polyram Plastic Industries' net profit dropped by 4.8% per year over the last three years. On the bright side, in the last twelve months it grew profit by 19%. On the other hand, earnings per share are only up 19% over the same period. So you can see that the dilution has had a bit of an impact on shareholders.

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 Polyram Plastic Industries can grow EPS persistently. 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.

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

Our Take On Polyram Plastic Industries' Profit Performance

Polyram Plastic Industries shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Polyram Plastic Industries' statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 19% in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Polyram Plastic Industries.

Today we've zoomed in on a single data point to better understand the nature of Polyram Plastic Industries' 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.