We Think You Should Be Aware Of Some Concerning Factors In IZMO's (NSE:IZMO) Earnings

The stock price didn't jump after IZMO Limited (NSE:IZMO) posted decent earnings last week. We did some digging and believe investors may be worried about some underlying factors in the report.

Check out our latest analysis for IZMO

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. IZMO expanded the number of shares on issue by 5.2% 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 IZMO's EPS by clicking here.

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

Unfortunately, IZMO's profit is down 2.3% per year over three years. On the bright side, in the last twelve months it grew profit by 30%. But EPS was less impressive, up only 29% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

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 IZMO 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 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 IZMO.

Our Take On IZMO's Profit Performance

Each IZMO share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that IZMO's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 29% in 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. In terms of investment risks, we've identified 3 warning signs with IZMO, and understanding these bad boys should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of IZMO'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 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.