Aviat Networks' (NASDAQ:AVNW) Earnings Offer More Than Meets The Eye

The market seemed underwhelmed by the solid earnings posted by Aviat Networks, Inc. (NASDAQ:AVNW) recently. Our analysis suggests that there are some reasons for hope that investors should be aware of.

See our latest analysis for Aviat Networks

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Aviat Networks issued 9.8% more new shares over the last year. 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. Check out Aviat Networks' historical EPS growth by clicking on this link.

How Is Dilution Impacting Aviat Networks' Earnings Per Share (EPS)?

Aviat Networks' net profit dropped by 87% per year over the last three years. The good news is that profit was up 7.1% in the last twelve months. But EPS was less impressive, and was pretty much flat over that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Aviat Networks can grow EPS persistently. 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.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Aviat Networks' profit suffered from unusual items, which reduced profit by US$10m 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 that's hardly a surprise given these line items are considered unusual. If Aviat Networks 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 Aviat Networks' Profit Performance

To sum it all up, Aviat Networks took a hit from unusual items which pushed its profit down; without that, it would have made more money. But on the other hand, the company issued more shares, so without buying more shares each shareholder will end up with a smaller part of the profit. Considering the aforementioned, we think that Aviat Networks' profits are probably a reasonable reflection of its underlying profitability; although we'd be confident in that conclusion if we saw a cleaner set of results. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. At Simply Wall St, we found 2 warning signs for Aviat Networks and we think they deserve your attention.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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.