Etihad Atheeb Telecommunication's (TADAWUL:7040) Attractive Earnings Are Not All Good News For Shareholders

Despite posting strong earnings, Etihad Atheeb Telecommunication Company's (TADAWUL:7040) stock didn't move much over the last week. We looked deeper into the numbers and found that shareholders might be concerned with some underlying weaknesses.

Check out our latest analysis for Etihad Atheeb Telecommunication

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Etihad Atheeb Telecommunication expanded the number of shares on issue by 278% 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. You can see a chart of Etihad Atheeb Telecommunication's EPS by clicking here.

How Is Dilution Impacting Etihad Atheeb Telecommunication's Earnings Per Share (EPS)?

Three years ago, Etihad Atheeb Telecommunication lost money. On the bright side, in the last twelve months it grew profit by 358%. On the other hand, earnings per share are only up 36% over the same period. Therefore, one can observe that the dilution is having a fairly profound effect 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 Etihad Atheeb Telecommunication can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 Etihad Atheeb Telecommunication.

How Do Unusual Items Influence Profit?

Finally, we should also consider the fact that unusual items boosted Etihad Atheeb Telecommunication's net profit by ر.س51m over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. Etihad Atheeb Telecommunication had a rather significant contribution from unusual items relative to its profit to March 2024. 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 Etihad Atheeb Telecommunication's Profit Performance

In its last report Etihad Atheeb Telecommunication 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 Etihad Atheeb Telecommunication's statutory profits might make it look better than it really is on an underlying level. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Be aware that Etihad Atheeb Telecommunication is showing 3 warning signs in our investment analysis and 2 of those shouldn't be ignored...

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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 with high insider ownership.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com