Exchange Income Corporation (TSE:EIF) announced strong profits, but the stock was stagnant. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.
To understand the value of a company’s earnings growth, it is imperative to consider any dilution of shareholders’ interests. Exchange Income expanded the number of shares on issue by 14% over the last year. As a result, its net income is now split between a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company’s profits, while the net income level gives us a better view of the company’s absolute size. Check out Exchange Income’s historical EPS growth by clicking on this link.
As you can see above, Exchange Income has been growing its net income over the last few years, with an annualized gain of 36% over three years. But EPS was only up 6.0% per year, in the exact same period. And over the last 12 months, the company grew its profit by 18%. But in comparison, EPS only increased by 10% over the same period. Therefore, the dilution is having a noteworthy influence 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 Exchange Income can grow EPS persistently. 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.
Exchange Income shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Exchange Income’s statutory profits are better than its underlying earnings power. Nonetheless, it’s still worth noting that its earnings per share have grown at 6.0% over the last three years. 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. If you’d like to know more about Exchange Income as a business, it’s important to be aware of any risks it’s facing. For example, we’ve discovered 2 warning signs that you should run your eye over to get a better picture of Exchange Income.
Read More: Impressive Earnings May Not Tell The Whole Story For Exchange Income
