Cloud Technologies' (WSE:CLD) Solid Profits Have Weak Fundamentals

By
Simply Wall St
Published
August 23, 2021
WSE:CLD
Source: Shutterstock

Unsurprisingly, Cloud Technologies S.A.'s (WSE:CLD) stock price was strong on the back of its healthy earnings report. However, we think that shareholders may be missing some concerning details in the numbers.

See our latest analysis for Cloud Technologies

earnings-and-revenue-history
WSE:CLD Earnings and Revenue History August 24th 2021

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Cloud Technologies increased the number of shares on issue by 9.6% over the last twelve months by issuing new shares. 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 Cloud Technologies' historical EPS growth by clicking on this link.

How Is Dilution Impacting Cloud Technologies' Earnings Per Share? (EPS)

We don't have any data on the company's profits from three years ago. 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. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If Cloud Technologies' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 Cloud Technologies.

Our Take On Cloud Technologies' Profit Performance

Over the last year Cloud Technologies issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that Cloud Technologies' true underlying earnings power is actually less than its statutory profit. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 2 warning signs for Cloud Technologies you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Cloud Technologies' 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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