Eltek (NASDAQ:ELTK) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

Unsurprisingly, Eltek Ltd.'s (NASDAQ:ELTK) 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.

View our latest analysis for Eltek

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Eltek increased the number of shares on issue by 33% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. 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 Eltek's historical EPS growth by clicking on this link.

A Look At The Impact Of Eltek's Dilution on Its Earnings Per Share (EPS).

Three years ago, Eltek lost money. On the bright side, in the last twelve months it grew profit by 45%. On the other hand, earnings per share are only up 21% 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 Eltek 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 Eltek.

Our Take On Eltek's Profit Performance

As we discussed above, Eltek's dilution over the last year has a major impact on its per-share earnings. For this reason, we think that Eltek's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that, its earnings per share increased by 21% in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. 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. Every company has risks, and we've spotted 3 warning signs for Eltek you should know about.

Today we've zoomed in on a single data point to better understand the nature of Eltek's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying to be useful.

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This article by Simply Wall St is general in nature. 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.
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