There Might Be More To Z.M.H Hammerman's (TLV:ZMH) Story Than Just Weak Earnings

Z.M.H Hammerman Ltd's (TLV:ZMH) stock wasn't much affected by its recent lackluster earnings numbers. Our analysis suggests that they may be missing some concerning details underlying the profit numbers.

See our latest analysis for Z.M.H Hammerman

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Z.M.H Hammerman increased the number of shares on issue by 11% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. You can see a chart of Z.M.H Hammerman's EPS by clicking here.

How Is Dilution Impacting Z.M.H Hammerman's Earnings Per Share (EPS)?

Unfortunately, Z.M.H Hammerman's profit is down 14% per year over three years. And even focusing only on the last twelve months, we see profit is down 27%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 27% in the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If Z.M.H Hammerman's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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 Z.M.H Hammerman.

How Do Unusual Items Influence Profit?

Finally, we should also consider the fact that unusual items boosted Z.M.H Hammerman's net profit by ₪8.6m over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. We can see that Z.M.H Hammerman's positive unusual items were quite significant relative to its profit in the year to December 2023. 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 Z.M.H Hammerman's Profit Performance

To sum it all up, Z.M.H Hammerman got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. 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 Z.M.H Hammerman's profits probably give an overly generous impression of its sustainable level of profitability. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. When we did our research, we found 3 warning signs for Z.M.H Hammerman (1 makes us a bit uncomfortable!) that we believe deserve your full attention.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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 that insiders are buying to be useful.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.