Israel Land Development's (TLV:ILDC) Problems Go Beyond Poor Profit

The Israel Land Development Company Ltd.'s (TLV:ILDC) stock wasn't much affected by its recent lackluster earnings numbers. We did some analysis and found some concerning details beneath the statutory profit number.

See our latest analysis for Israel Land Development

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Israel Land Development issued 7.3% more new shares over the last year. That means its earnings are split among 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 Israel Land Development's historical EPS growth by clicking on this link.

How Is Dilution Impacting Israel Land Development's Earnings Per Share? (EPS)

Unfortunately, Israel Land Development's profit is down 41% per year over three years. Even looking at the last year, profit was still down 69%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 70% in the same period. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Israel Land Development's earnings per share can increase, then the share price should too. 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 Israel Land Development.

The Impact Of Unusual Items On Profit

Finally, we should also consider the fact that unusual items boosted Israel Land Development's net profit by ₪312m over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. We can see that Israel Land Development's positive unusual items were quite significant relative to its profit in the year to September 2021. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Israel Land Development's Profit Performance

In its last report Israel Land Development 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. For the reasons mentioned above, we think that a perfunctory glance at Israel Land Development's statutory profits might make it look better than it really is on an underlying level. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. When we did our research, we found 4 warning signs for Israel Land Development (1 can't be ignored!) that we believe deserve your full attention.

Our examination of Israel Land Development 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 is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying 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.