OPC Energy's (TLV:OPCE) Weak Earnings May Only Reveal A Part Of The Whole Picture

The subdued market reaction suggests that OPC Energy Ltd.'s (TLV:OPCE) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

See our latest analysis for OPC Energy

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. OPC Energy expanded the number of shares on issue by 14% 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 OPC Energy's EPS by clicking here.

How Is Dilution Impacting OPC Energy's Earnings Per Share (EPS)?

OPC Energy was losing money three years ago. 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 28% in the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if OPC Energy'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 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 OPC Energy.

Our Take On OPC Energy's Profit Performance

OPC Energy issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that OPC Energy's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. If you'd like to know more about OPC Energy as a business, it's important to be aware of any risks it's facing. Our analysis shows 3 warning signs for OPC Energy (1 is a bit unpleasant!) and we strongly recommend you look at them before investing.

This note has only looked at a single factor that sheds light on the nature of OPC Energy's profit. But there are plenty of other ways to inform your opinion of a company. 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 with significant insider holdings 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.