GPT Infraprojects' (NSE:GPTINFRA) Earnings Are Weaker Than They Seem

Last week's profit announcement from GPT Infraprojects Limited (NSE:GPTINFRA) was underwhelming for investors, despite headline numbers being robust. We think that the market might be paying attention to some underlying factors that they find to be concerning.

See our latest analysis for GPT Infraprojects

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, GPT Infraprojects increased the number of shares on issue by 8.6% over the last twelve months by issuing new shares. That means its earnings are split among 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 GPT Infraprojects' EPS by clicking here.

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

As you can see above, GPT Infraprojects has been growing its net income over the last few years, with an annualized gain of 213% over three years. And at a glance the 46% gain in profit over the last year impresses. But in comparison, EPS only increased by 45% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if GPT Infraprojects can grow EPS persistently. 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.

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

Our Take On GPT Infraprojects' Profit Performance

GPT Infraprojects shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that GPT Infraprojects' true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. In terms of investment risks, we've identified 2 warning signs with GPT Infraprojects, 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 GPT Infraprojects' 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 with significant insider holdings 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.