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After announcing healthy earnings, Promisia Healthcare Limited's (NZSE:PHL) stock rose over the last week. While the headline numbers were strong, we found some underlying problems once we started looking at what drove earnings.
View our latest analysis for Promisia Healthcare
To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Promisia Healthcare issued 23% more new shares over the last year. 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 Promisia Healthcare's historical EPS growth by clicking on this link.
A Look At The Impact Of Promisia Healthcare's Dilution On Its Earnings Per Share (EPS)
Promisia Healthcare has improved its profit over the last three years, with an annualized gain of 626% in that time. But EPS was only up 595% per year, in the exact same period. And the 4,574% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 4,497% 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 Promisia 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 Promisia Healthcare.
The Impact Of Unusual Items On Profit
Finally, we should also consider the fact that unusual items boosted Promisia Healthcare's net profit by NZ$9.4m over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. We can see that Promisia Healthcare's positive unusual items were quite significant relative to its profit in the year to September 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.