The market rallied behind OneSpaWorld Holdings Limited's (NASDAQ:OSW) stock, leading do a rise in the share price after its recent weak earnings report. We think that shareholders might be missing some concerning factors that our analysis found.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. OneSpaWorld Holdings expanded the number of shares on issue by 7.8% over the last year. As a result, its net income is now split between a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a chart of OneSpaWorld Holdings' EPS by clicking here.

A Look At The Impact Of OneSpaWorld Holdings' Dilution On Its Earnings Per Share (EPS)

Three years ago, OneSpaWorld Holdings lost money. Even looking at the last year, profit was still down 22%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 27% in the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If OneSpaWorld Holdings' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.

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 OneSpaWorld Holdings' Profit Performance

Over the last year OneSpaWorld Holdings issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that OneSpaWorld Holdings' true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into OneSpaWorld Holdings, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 3 warning signs with OneSpaWorld Holdings, and understanding these should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of OneSpaWorld Holdings' profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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 that insiders are buying to be useful.

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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.