Shaky Earnings May Not Tell The Whole Story For Synopsys (NASDAQ:SNPS)

Synopsys, Inc.'s (NASDAQ:SNPS) stock wasn't much affected by its recent lackluster earnings numbers. We did some analysis and found some concerning details beneath the statutory profit number.

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To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Synopsys expanded the number of shares on issue by 24% over the last year. As a result, its net income is now split between 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 Synopsys' EPS by clicking here.

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

Synopsys has improved its profit over the last three years, with an annualized gain of 38% in that time. Net profit actually dropped by 7.3% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 13%. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, if Synopsys' 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.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Synopsys' profit was boosted by unusual items worth US$597m in the last twelve months. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. Synopsys had a rather significant contribution from unusual items relative to its profit to October 2025. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Synopsys' Profit Performance

To sum it all up, Synopsys got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. For the reasons mentioned above, we think that a perfunctory glance at Synopsys' statutory profits might make it look better than it really is on an underlying level. So while earnings quality is important, it's equally important to consider the risks facing Synopsys at this point in time. Every company has risks, and we've spotted 2 warning signs for Synopsys you should know about.

Our examination of Synopsys has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.