Why Lahav LR Real Estate's (TLV:LAHAV) Shaky Earnings Are Just The Beginning Of Its Problems

A lackluster earnings announcement from Lahav LR Real Estate Ltd (TLV:LAHAV) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

Check out our latest analysis for Lahav LR Real Estate

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Lahav LR Real Estate increased the number of shares on issue by 7.4% over the last twelve months by issuing new shares. 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. Check out Lahav LR Real Estate's historical EPS growth by clicking on this link.

How Is Dilution Impacting Lahav LR Real Estate's Earnings Per Share (EPS)?

Lahav LR Real Estate's net profit dropped by 42% per year over the last three years. Even looking at the last year, profit was still down 4.5%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 8.2% in the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If Lahav LR Real Estate'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 Lahav LR Real Estate.

Our Take On Lahav LR Real Estate's Profit Performance

Over the last year Lahav LR Real Estate issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that Lahav LR Real Estate's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, Lahav LR Real Estate has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

This note has only looked at a single factor that sheds light on the nature of Lahav LR Real Estate's profit. 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.