Saudi Arabian Mining Company (Ma’aden)’s (TADAWUL:1211) Solid Earnings Are Supported By Other Strong Factors

The subdued stock price reaction suggests that Saudi Arabian Mining Company (Ma’aden)’s (TADAWUL:1211) strong earnings didn’t offer any surprises. We think that investors have missed some encouraging factors underlying the profit figures.

Trump has pledged to “unleash” American oil and gas and these 15 US stocks have developments that are poised to benefit.

To understand the value of a company’s earnings growth, it is imperative to consider any dilution of shareholders’ interests. As it happens, Saudi Arabian Mining Company (Ma’aden) issued 5.3% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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 Saudi Arabian Mining Company (Ma’aden)’s historical EPS growth by clicking on this link.

A Look At The Impact Of Saudi Arabian Mining Company (Ma’aden)’s Dilution On Its Earnings Per Share (EPS)

Unfortunately, Saudi Arabian Mining Company (Ma’aden)’s profit is down 46% per year over three years. The good news is that profit was up 44% in the last twelve months. But EPS was less impressive, up only 40% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Saudi Arabian Mining Company (Ma’aden) can grow EPS persistently. 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.

The Impact Of Unusual Items On Profit

Alongside that dilution, it’s also important to note that Saudi Arabian Mining Company (Ma’aden)’s profit suffered from unusual items, which reduced profit by ر.س1.7b in the last twelve months. It’s never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that’s hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don’t come up again, we’d therefore expect Saudi Arabian Mining Company (Ma’aden) to produce a higher profit next year, all else being equal.

Our Take On Saudi Arabian Mining Company (Ma’aden)’s Profit Performance

Saudi Arabian Mining Company (Ma’aden) suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. But on the other hand, the company issued more shares, so without buying more shares each shareholder will end up with a smaller part of the profit. Given the contrasting considerations, we don’t have a strong view as to whether Saudi Arabian Mining Company (Ma’aden)’s profits are an apt reflection of its underlying potential for profit. While it’s really important to consider how well a company’s statutory earnings represent its true earnings power, it’s also worth taking a look at what analysts are forecasting for the future. Luckily, you can check out what analysts are forecasting by clicking here.

Our examination of Saudi Arabian Mining Company (Ma’aden) has focussed on certain factors that can make its earnings look better than they are. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.