Concerns Surrounding Power Mech Projects' (NSE:POWERMECH) Performance

Power Mech Projects Limited's (NSE:POWERMECH) healthy profit numbers didn't contain any surprises for investors. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

View our latest analysis for Power Mech Projects

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Power Mech Projects increased the number of shares on issue by 6.0% 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 Power Mech Projects' EPS by clicking here.

A Look At The Impact Of Power Mech Projects' Dilution On Its Earnings Per Share (EPS)

Three years ago, Power Mech Projects lost money. The good news is that profit was up 19% in the last twelve months. But EPS was less impressive, up only 16% in that time. 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 Power Mech Projects can grow EPS persistently. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 Power Mech Projects' Profit Performance

Power Mech Projects 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 Power Mech Projects' true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 16% in the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing Power Mech Projects at this point in time. In terms of investment risks, we've identified 2 warning signs with Power Mech Projects, 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 Power Mech Projects' 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. 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.