In This Article:
The subdued market reaction suggests that Spectra Systems Corporation's (LON:SPSY) recent earnings didn't contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.
Check out our latest analysis for Spectra Systems
One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Spectra Systems issued 7.0% more new shares over the last year. That means its earnings are split among 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. You can see a chart of Spectra Systems' EPS by clicking here.
How Is Dilution Impacting Spectra Systems' Earnings Per Share (EPS)?
Spectra Systems has improved its profit over the last three years, with an annualized gain of 6.6% in that time. Net profit actually dropped by 20% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 23%. And so, you can see quite clearly that dilution is influencing shareholder earnings.
In the long term, if Spectra Systems' earnings per share can increase, then the share price should too. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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.
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.
Our Take On Spectra Systems' Profit Performance
Spectra Systems issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that Spectra Systems' statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Every company has risks, and we've spotted 3 warning signs for Spectra Systems you should know about.