Investors Shouldn't Be Too Comfortable With Rotshtein Realestate's (TLV:ROTS) Earnings

Unsurprisingly, Rotshtein Realestate Ltd's (TLV:ROTS) stock price was strong on the back of its healthy earnings report. However, we think that shareholders may be missing some concerning details in the numbers.

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One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Rotshtein Realestate expanded the number of shares on issue by 5.5% over the last year. Therefore, each share now receives a smaller portion of profit. 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 Rotshtein Realestate's EPS by clicking here.

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

As you can see above, Rotshtein Realestate has been growing its net income over the last few years, with an annualized gain of 72% over three years. In comparison, earnings per share only gained 46% over the same period. And the 258% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 232% 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 it will certainly be a positive for shareholders if Rotshtein Realestate can grow EPS persistently. 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 Rotshtein Realestate.

Our Take On Rotshtein Realestate's Profit Performance

Each Rotshtein Realestate 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 Rotshtein Realestate's statutory profits are better than its underlying earnings power. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. While conducting our analysis, we found that Rotshtein Realestate has 1 warning sign and it would be unwise to ignore this.

This note has only looked at a single factor that sheds light on the nature of Rotshtein Realestate'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 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.