Capacit'e Infraprojects' (NSE:CAPACITE) Earnings Are Weaker Than They Seem

Capacit'e Infraprojects Limited (NSE:CAPACITE) announced strong profits, but the stock was stagnant. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

Check out our latest analysis for Capacit'e Infraprojects

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Capacit'e Infraprojects issued 25% more new shares 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 Capacit'e Infraprojects' EPS by clicking here.

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

Capacit'e Infraprojects has improved its profit over the last three years, with an annualized gain of 7,750% in that time. In comparison, earnings per share only gained 7,029% over the same period. And at a glance the 26% gain in profit over the last year impresses. On the other hand, earnings per share are only up 15% in that time. So you can see that the dilution has had a fairly significant impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Capacit'e Infraprojects shareholders will want to see that EPS figure continue to increase. 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 Capacit'e Infraprojects' Profit Performance

Each Capacit'e Infraprojects share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Capacit'e Infraprojects' true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. While conducting our analysis, we found that Capacit'e Infraprojects has 2 warning signs and it would be unwise to ignore them.

This note has only looked at a single factor that sheds light on the nature of Capacit'e Infraprojects' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.

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.