We Think That There Are More Issues For OPC Energy (TLV:OPCE) Than Just Sluggish Earnings

The subdued market reaction suggests that OPC Energy Ltd.'s (TLV:OPCE) recent earnings didn't contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.

Check out our latest analysis for OPC Energy

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, OPC Energy issued 11% 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. You can see a chart of OPC Energy's EPS by clicking here.

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

Three years ago, OPC Energy lost money. Even looking at the last year, profit was still down 14%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 21% 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 OPC Energy's earnings per share can increase, then the share price should too. 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 OPC Energy.

Our Take On OPC Energy's Profit Performance

Over the last year OPC Energy issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that OPC Energy's statutory profits are better than its underlying earnings power. 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. For example, OPC Energy has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of OPC Energy's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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.