We Believe Lahav LR Real Estate's (TLV:LAHAV) Earnings Are A Poor Guide For Its Profitability

After announcing healthy earnings, Lahav LR Real Estate Ltd's (TLV:LAHAV) stock rose over the last week. Despite the strong profit numbers, we believe that there are some deeper issues which investors should look into.

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One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Lahav LR Real Estate expanded the number of shares on issue by 5.2% over the last year. As a result, its net income is now split between a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a chart of Lahav LR Real Estate's EPS by clicking here.

A Look At The Impact Of Lahav LR Real Estate's Dilution On Its Earnings Per Share (EPS)

Lahav LR Real Estate has improved its profit over the last three years, with an annualized gain of 40% in that time. In comparison, earnings per share only gained 25% over the same period. And the 87% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 76% over the same period. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So Lahav LR Real Estate shareholders will want to see that EPS figure continue to increase. 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 Lahav LR Real Estate.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Lahav LR Real Estate's profit was boosted by unusual items worth ₪78m in the last twelve months. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. Lahav LR Real Estate had a rather significant contribution from unusual items relative to its profit to September 2025. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Lahav LR Real Estate's Profit Performance

In its last report Lahav LR Real Estate benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. Considering all this we'd argue Lahav LR Real Estate's profits probably give an overly generous impression of its sustainable level of profitability. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To help with this, we've discovered 3 warning signs (1 shouldn't be ignored!) that you ought to be aware of before buying any shares in Lahav LR Real Estate.

Our examination of Lahav LR Real Estate has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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 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.