A strong earnings report for Aspial Lifestyle Limited (Catalist:5UF) failed to move the company's share price, and our analysis suggests this could be because shareholders have noticed some worrying underlying factors.
See our latest analysis for Aspial Lifestyle
Earnings and Revenue History
To understand the value of a company's earnings growth, it is essential to consider shareholder dilution. In fact, Aspial Lifestyle increased its outstanding shares by 10% over the last 12 months, resulting in net income being distributed across a larger number of shares. Celebrating net income while ignoring dilution is like celebrating a bigger pizza because you've had a slice, but ignoring the fact that the pizza has been cut into more slices. You can see a graph of Aspial Lifestyle's EPS by clicking here.
How will dilution affect Aspial Lifestyle's earnings per share (EPS)?
Unfortunately, Aspial Lifestyle's profits have fallen 12% per year over the last three years. The good news is that profits grew 49% over the last twelve months. Meanwhile, earnings per share have only grown 39% over the same period. So we can see that dilution is having a bit of an impact on shareholders.
Changes in share price tend to reflect changes in earnings per share over the long term. So if Aspial Lifestyle can continue to grow EPS, shareholders will undoubtedly benefit. However, if earnings per share remain flat (or even declining) even as profits grow, shareholders may not benefit as much. So, assuming your goal is to assess whether a company's share price will rise, we'd say that EPS is more important than net income in the long term.
Note: Investors are always advised to check the strength of their balance sheet, so you can click here to see Aspiral Lifestyle's balance sheet analysis.
Our take on Aspial Lifestyle's profit performance
Due to the dilution of existing shareholders, the percentage of profit that Aspial Lifestyle receives per share is now significantly reduced. Therefore, Aspial Lifestyle's true earnings potential may actually be lower than its statutory profits. However, shareholders can at least find some solace in the 39% EPS growth over the last year. Ultimately, if you want to understand the company properly, you need to consider not only the factors mentioned above but others as well. With this in mind, if you want to analyse the company further, it is essential to know about the risks involved. Be aware that Aspial Lifestyle is showing 3 warning signs in our investment analysis and 1 of them shouldn't be ignored…
The story continues
In this note, we've looked at just one factor that sheds light on the nature of Aspial Lifestyle's profitability. But there's always more to discover if you focus on the finer details. For example, many people consider a high return on equity to be a sign of favorable business economics, while others 'follow the money' and look for stocks that insiders are buying. Therefore, you may wish to see our free collection of companies boasting high return on equity, as well as our list of stocks with high insider ownership.
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This article by Simply Wall St is of general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell a stock, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned herein.
