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Austco Healthcare Limited's (ASX:AHC) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that shareholders have noticed something concerning in the numbers.
Check out our latest analysis for Austco Healthcare
To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Austco Healthcare increased the number of shares on issue by 24% over the last twelve months by issuing new shares. 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 Austco Healthcare's historical EPS growth by clicking on this link.
A Look At The Impact Of Austco Healthcare's Dilution On Its Earnings Per Share (EPS)
Austco Healthcare has improved its profit over the last three years, with an annualized gain of 107% in that time. But EPS was only up 93% per year, in the exact same period. And the 213% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 198% over the same period. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.
In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Austco Healthcare 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 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.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Austco Healthcare.
Our Take On Austco Healthcare's Profit Performance
Each Austco Healthcare share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Austco Healthcare's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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 want to do dive deeper into Austco Healthcare, you'd also look into what risks it is currently facing. At Simply Wall St, we found 2 warning signs for Austco Healthcare and we think they deserve your attention.