Lifestyle Communities Limited's (ASX:LIC) recent results release was disappointing for investors and we've looked into it further and believe there's plenty to be concerned about beyond the weak profit figures.
Check out our latest analysis for Lifestyle Communities
Earnings and Revenue History
To understand earnings per share potential, it's essential to consider how much a company is diluting shareholders. In fact, Lifestyle Community increased its outstanding shares by 17% over the last 12 months by issuing new shares. As a result, net income is now distributed across a larger number of shares. To talk about net income without paying attention to earnings per share is to get distracted by the big numbers and ignore the smaller numbers that represent value per share. Click this link to see Lifestyle Community's historical EPS growth.
How will dilution affect Lifestyle Communities' earnings per share (EPS)?
Unfortunately, Lifestyle Communities' profits have fallen 45% per year over the past three years. If we look at last year, profits were still down 39%. Sadly, earnings per share fell even further, by 42% in that time. So it's clear that dilution is impacting shareholder returns.
If Lifestyle Community's EPS grows over time, it's much more likely that the share price will move in the same direction. On the other hand, it's probably less exciting to know that profits (but not EPS) are improving. So, assuming your goal is to assess whether the company's share price will rise, we'd say that EPS is more important than net income in the long term.
You might be wondering what analysts are forecasting in terms of future profitability, and luckily, you can click here to see an interactive graph depicting future profitability based on analyst forecasts.
How rare items affect profits
Alongside dilution, it's also worth noting that Lifestyle Communities' profits were boosted by A$52 million worth of special items in the last 12 months. While profit growth is positive, we tend to be a bit cautious when special items make a big contribution. In analysing figures for thousands of listed companies, we find that a boost from special items in one year is often not repeated the next. And, after all, that's exactly what the accounting terminology implies. We can see that Lifestyle Communities' positive special items are quite large relative to its profits in the year to June 2024. All else being equal, this could have the effect of making statutory profits a less useful indicator of underlying earnings power.
The story continues
Our take on lifestyle communities' revenue performance
To summarise, Lifestyle Community has been able to significantly boost its profits from unusual items, without which its statutory results would have been much worse. Moreover, dilution has led to a worse earnings per share performance than its profit performance. Taking all this into account, we'd say Lifestyle Community's earnings give the impression that it's probably overly generous for its sustainable level of profitability. If you want to investigate Lifestyle Community further, you should also look at the risks it currently faces. At Simply Wall St, we've spotted 3 warning signs for Lifestyle Community that we think are worth noting.
In this article, we have looked at some factors that can undermine the usefulness of profit figures and come to a cautious conclusion. However, there is always a lot to discover if you can focus on the small details. For example, many people consider a high return on equity to be a sign of favorable business economics, while others prefer to 'follow the money' and look for stocks that insiders are buying. It might take a little research for you, but you may find our free collection of companies boasting high return on equity or this list of stocks with significant insider ownership useful.
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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.
