There May Be Underlying Issues With The Quality Of Addus HomeCare's (NASDAQ:ADUS) Earnings

Addus HomeCare Corporation (NASDAQ:ADUS) announced strong profits, but the stock was stagnant. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

See our latest analysis for Addus HomeCare

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Addus HomeCare increased the number of shares on issue by 12% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. You can see a chart of Addus HomeCare's EPS by clicking here.

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

Addus HomeCare has improved its profit over the last three years, with an annualized gain of 81% in that time. And the 28% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 27% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Addus HomeCare shareholders will want to see that EPS figure continue to increase. 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.

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.

Our Take On Addus HomeCare's Profit Performance

Each Addus HomeCare 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 Addus HomeCare's statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. 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. So while earnings quality is important, it's equally important to consider the risks facing Addus HomeCare at this point in time. Every company has risks, and we've spotted 1 warning sign for Addus HomeCare you should know about.

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