Why Solrom Holdings' (TLV:SLRM) Shaky Earnings Are Just The Beginning Of Its Problems

A lackluster earnings announcement from Solrom Holdings Ltd (TLV:SLRM) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

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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. Solrom Holdings expanded the number of shares on issue by 353% over the last year. As a result, its net income is now split between 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 Solrom Holdings' EPS by clicking here.

A Look At The Impact Of Solrom Holdings' Dilution On Its Earnings Per Share (EPS)

Three years ago, Solrom Holdings lost money. Even looking at the last year, profit was still down 3.8%. Sadly, earnings per share fell further, down a full 2.8% in that time. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

In the long term, if Solrom Holdings' 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 Solrom Holdings.

Our Take On Solrom Holdings' Profit Performance

Solrom Holdings issued shares during the year, and that means its EPS performance lags its net income growth. For this reason, we think that Solrom Holdings' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Sadly, its EPS was down over the last twelve months. 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 Solrom Holdings, you'd also look into what risks it is currently facing. Case in point: We've spotted 2 warning signs for Solrom Holdings you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Solrom Holdings' 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.