Solid Earnings May Not Tell The Whole Story For Remsons Industries (NSE:REMSONSIND)

The market shrugged off Remsons Industries Limited's (NSE:REMSONSIND) solid earnings report. We did some digging and believe investors may be worried about some underlying factors in the report.

Check out our latest analysis for Remsons Industries

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Remsons Industries expanded the number of shares on issue by 22% over the last year. Therefore, each share now receives a smaller portion of profit. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. Check out Remsons Industries' historical EPS growth by clicking on this link.

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

As you can see above, Remsons Industries has been growing its net income over the last few years, with an annualized gain of 197% over three years. But EPS was only up 143% per year, in the exact same period. And at a glance the 59% gain in profit over the last year impresses. But in comparison, EPS only increased by 30% over the same period. 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 Remsons Industries can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Remsons Industries.

Our Take On Remsons Industries' Profit Performance

Each Remsons Industries share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Remsons Industries' statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. 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. If you'd like to know more about Remsons Industries as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Remsons Industries has 2 warning signs and it would be unwise to ignore them.

Today we've zoomed in on a single data point to better understand the nature of Remsons Industries' 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. 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.