Investors Shouldn't Be Too Comfortable With Zaklady Przemyslu Cukierniczego Otmuchów's (WSE:OTM) Earnings

Zaklady Przemyslu Cukierniczego Otmuchów S.A.'s (WSE:OTM) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that shareholders have noticed something concerning in the numbers.

Check out our latest analysis for Zaklady Przemyslu Cukierniczego Otmuchów

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Zaklady Przemyslu Cukierniczego Otmuchów expanded the number of shares on issue by 19% over the last year. As a result, its net income is now split between a greater number of shares. 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. Check out Zaklady Przemyslu Cukierniczego Otmuchów's historical EPS growth by clicking on this link.

A Look At The Impact Of Zaklady Przemyslu Cukierniczego Otmuchów's Dilution On Its Earnings Per Share (EPS)

Three years ago, Zaklady Przemyslu Cukierniczego Otmuchów lost money. And even focusing only on the last twelve months, we don't have a meaningful growth rate because it made a loss a year ago, too. But mathematics aside, it is always good to see when a formerly unprofitable business come good (though we accept profit would have been higher if dilution had not been required). So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Zaklady Przemyslu Cukierniczego Otmuchów'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 Zaklady Przemyslu Cukierniczego Otmuchów.

The Impact Of Unusual Items On Profit

Alongside that dilution, it's also important to note that Zaklady Przemyslu Cukierniczego Otmuchów's profit was boosted by unusual items worth zł2.3m in the last twelve months. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Zaklady Przemyslu Cukierniczego Otmuchów's positive unusual items were quite significant relative to its profit in the year to June 2023. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Zaklady Przemyslu Cukierniczego Otmuchów's Profit Performance

In its last report Zaklady Przemyslu Cukierniczego Otmuchów benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. For the reasons mentioned above, we think that a perfunctory glance at Zaklady Przemyslu Cukierniczego Otmuchów's statutory profits might make it look better than it really is on an underlying level. If you'd like to know more about Zaklady Przemyslu Cukierniczego Otmuchów as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 3 warning signs with Zaklady Przemyslu Cukierniczego Otmuchów, and understanding these should be part of your investment process.

Our examination of Zaklady Przemyslu Cukierniczego Otmuchów has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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 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.