Are Prestige Estates Projects's (NSE:PRESTIGE) Statutory Earnings A Good Reflection Of Its Earnings Potential?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. This article will consider whether Prestige Estates Projects' (NSE:PRESTIGE) statutory profits are a good guide to its underlying earnings.

We like the fact that Prestige Estates Projects made a profit of ₹4.03b on its revenue of ₹81.2b, in the last year. Happily, it has grown both its profit and revenue over the last three years (though we note its profit is down over the last year).

View our latest analysis for Prestige Estates Projects

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. In this article we'll look at how Prestige Estates Projects is impacting shareholders by issuing new shares. 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.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Prestige Estates Projects increased the number of shares on issue by 6.9% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. 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. Check out Prestige Estates Projects' historical EPS growth by clicking on this link.

A Look At The Impact Of Prestige Estates Projects' Dilution on Its Earnings Per Share (EPS).

Prestige Estates Projects has improved its profit over the last three years, with an annualized gain of 52% in that time. Net profit actually dropped by 3.0% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 4.1%. So you can see that the dilution has had a bit of an impact on shareholders. Therefore, the dilution is having a noteworthy influence on shareholder returns. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if Prestige Estates Projects' earnings per share can increase, then the share price should too. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Our Take On Prestige Estates Projects' Profit Performance

Prestige Estates Projects 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 Prestige Estates Projects' statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 50% over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Case in point: We've spotted 4 warning signs for Prestige Estates Projects you should be mindful of and 1 of these can't be ignored.

Today we've zoomed in on a single data point to better understand the nature of Prestige Estates Projects' profit. But there are plenty of other ways to inform your opinion of a company. 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 that insiders are buying to be useful.

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This article by Simply Wall St is general in nature. 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.
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