Meshek Energy - Renewable Energies' (TLV:MSKE) Earnings Are Of Questionable Quality

Meshek Energy - Renewable Energies Ltd.'s (TLV:MSKE) stock was strong after they recently reported robust earnings. However, we think that shareholders may be missing some concerning details in the numbers.

Check out our latest analysis for Meshek Energy - Renewable Energies

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Meshek Energy - Renewable Energies expanded the number of shares on issue by 42% 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 Meshek Energy - Renewable Energies' historical EPS growth by clicking on this link.

A Look At The Impact Of Meshek Energy - Renewable Energies' Dilution On Its Earnings Per Share (EPS)

Three years ago, Meshek Energy - Renewable Energies lost money. Zooming in to the last year, we still can't talk about growth rates coherently, since it made a loss last year. What we do know is that while it's great to see a profit over the last twelve months, that profit would have been better, on a per share basis, if the company hadn't needed to issue shares. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, if Meshek Energy - Renewable Energies' 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 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 Meshek Energy - Renewable Energies.

Our Take On Meshek Energy - Renewable Energies' Profit Performance

Meshek Energy - Renewable Energies issued shares during the year, and that means its EPS performance lags its net income growth. As a result, we think it may well be the case that Meshek Energy - Renewable Energies' underlying earnings power is lower than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing Meshek Energy - Renewable Energies at this point in time. In terms of investment risks, we've identified 1 warning sign with Meshek Energy - Renewable Energies, and understanding it should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Meshek Energy - Renewable Energies' 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.