Solid Earnings May Not Tell The Whole Story For Taiba Investment (TADAWUL:4090)

The recent earnings posted by Taiba Investment Company (TADAWUL:4090) were solid, but the stock didn't move as much as we expected. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

See our latest analysis for Taiba Investment

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Taiba Investment increased the number of shares on issue by 62% over the last twelve months by issuing new shares. 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 Taiba Investment's historical EPS growth by clicking on this link.

A Look At The Impact Of Taiba Investment's Dilution On Its Earnings Per Share (EPS)

Taiba Investment was losing money three years ago. On the bright side, in the last twelve months it grew profit by 11%. But earnings per share are actually down 27%, over that same period. This is a great example of why it's rather imprudent to rely only on net income as a growth measure. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

If Taiba Investment's 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.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

The Impact Of Unusual Items On Profit

Alongside that dilution, it's also important to note that Taiba Investment's profit suffered from unusual items, which reduced profit by ر.س129m in the last twelve months. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Taiba Investment doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Taiba Investment's Profit Performance

To sum it all up, Taiba Investment took a hit from unusual items which pushed its profit down; without that, it would have made more money. But unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Based on these factors, we think it's very unlikely that Taiba Investment's statutory profits make it seem much weaker than it is. If you'd like to know more about Taiba Investment as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 3 warning signs we've spotted with Taiba Investment (including 1 which is a bit concerning).

Our examination of Taiba Investment has focussed on certain factors that can make its earnings look better than they are. 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.