Impressive Earnings May Not Tell The Whole Story For Jain Irrigation Systems (NSE:JISLJALEQS)

Despite announcing strong earnings, Jain Irrigation Systems Limited's (NSE:JISLJALEQS) stock was sluggish. Our analysis uncovered some concerning factors that we believe the market might be paying attention to.

Check out our latest analysis for Jain Irrigation Systems

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Jain Irrigation Systems increased the number of shares on issue by 9.9% over the last twelve months by issuing new shares. 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. You can see a chart of Jain Irrigation Systems' EPS by clicking here.

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

Jain Irrigation Systems was losing money three years ago. And even focusing only on the last twelve months, we don't have a meaningful growth rate because it made a loss a year ago, too. But mathematics aside, it is always good to see when a formerly unprofitable business come good (though we accept profit would have been higher if dilution had not been required). And so, you can see quite clearly that dilution is influencing shareholder earnings.

If Jain Irrigation Systems' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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 Jain Irrigation Systems.

Our Take On Jain Irrigation Systems' Profit Performance

Jain Irrigation Systems issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Jain Irrigation Systems' true underlying earnings power is actually less than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. To that end, you should learn about the 3 warning signs we've spotted with Jain Irrigation Systems (including 2 which make us uncomfortable).

Today we've zoomed in on a single data point to better understand the nature of Jain Irrigation Systems' 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.