Fridenson Logistic Services' (TLV:FRDN) Promising Earnings May Rest On Soft Foundations

Despite posting some strong earnings, the market for Fridenson Logistic Services Ltd's (TLV:FRDN) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

Check out our latest analysis for Fridenson Logistic Services

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Fridenson Logistic Services issued 19% more new shares 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 Fridenson Logistic Services' EPS by clicking here.

How Is Dilution Impacting Fridenson Logistic Services' Earnings Per Share? (EPS)

Fridenson Logistic Services has improved its profit over the last three years, with an annualized gain of 5.0% in that time. And the 169% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 167% over the same period. So you can see that the dilution has had a bit of an impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if Fridenson Logistic Services can grow EPS persistently. 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 Fridenson Logistic Services.

Our Take On Fridenson Logistic Services' Profit Performance

Fridenson Logistic Services 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 Fridenson Logistic Services' true underlying earnings power is actually less than its statutory profit. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, Fridenson Logistic Services has 6 warning signs (and 2 which are a bit concerning) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of Fridenson Logistic Services' 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 that insiders are buying.

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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.