We Think That There Are Issues Underlying Rotshtein Realestate's (TLV:ROTS) Earnings

Rotshtein Realestate Ltd's (TLV:ROTS) stock was strong after they recently reported robust earnings. However, we think that shareholders may be missing some concerning details in the numbers.

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In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Rotshtein Realestate increased the number of shares on issue by 8.5% 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 Rotshtein Realestate's historical EPS growth by clicking on this link.

A Look At The Impact Of Rotshtein Realestate's Dilution On Its Earnings Per Share (EPS)

Rotshtein Realestate has improved its profit over the last three years, with an annualized gain of 42% in that time. But EPS was only up 20% per year, in the exact same period. And at a glance the 36% gain in profit over the last year impresses. On the other hand, earnings per share are only up 32% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Rotshtein Realestate shareholders will want to see that EPS figure continue to increase. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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 Rotshtein Realestate.

Our Take On Rotshtein Realestate's Profit Performance

Rotshtein Realestate shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that Rotshtein Realestate's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 20% per annum growth in EPS for the last three. 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. If you want to do dive deeper into Rotshtein Realestate, you'd also look into what risks it is currently facing. While conducting our analysis, we found that Rotshtein Realestate has 1 warning sign and it would be unwise to ignore this.

Today we've zoomed in on a single data point to better understand 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.