Pitti Engineering's (NSE:PITTIENG) Shareholders May Want To Dig Deeper Than Statutory Profit

The market shrugged off Pitti Engineering Limited's (NSE:PITTIENG) solid earnings report. Our analysis showed that there are some concerning factors in the earnings that investors may be cautious of.

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To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Pitti Engineering increased the number of shares on issue by 17% over the last twelve months by issuing new shares. As a result, its net income is now split between 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. Check out Pitti Engineering's historical EPS growth by clicking on this link.

A Look At The Impact Of Pitti Engineering's Dilution On Its Earnings Per Share (EPS)

As you can see above, Pitti Engineering has been growing its net income over the last few years, with an annualized gain of 136% over three years. In comparison, earnings per share only gained 106% over the same period. And the 36% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 18% over the same period. So you can see that the dilution has had a bit of an impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Pitti Engineering shareholders will want to see that EPS figure continue to increase. 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.

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 Pitti Engineering's Profit Performance

Each Pitti Engineering share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Pitti Engineering's 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. 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. If you'd like to know more about Pitti Engineering as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Pitti Engineering has 2 warning signs and it would be unwise to ignore these bad boys.

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