Investors Shouldn't Be Too Comfortable With Pritika Auto Industries' (NSE:PRITIKAUTO) Earnings

Pritika Auto Industries Limited's (NSE:PRITIKAUTO) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that shareholders have noticed something concerning in the numbers.

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In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Pritika Auto Industries increased the number of shares on issue by 15% over the last twelve months by issuing new shares. That means its earnings are split among 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 Pritika Auto Industries' EPS by clicking here.

A Look At The Impact Of Pritika Auto Industries' Dilution On Its Earnings Per Share (EPS)

Pritika Auto Industries has improved its profit over the last three years, with an annualized gain of 17% in that time. But on the other hand, earnings per share actually fell by 37% per year. And the 35% profit boost in the last year certainly seems impressive at first glance. But earnings per share are actually down 12%, over the last twelve months. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if Pritika Auto Industries' earnings per share can increase, then the share price should too. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Pritika Auto Industries.

Our Take On Pritika Auto Industries' Profit Performance

Pritika Auto Industries shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Pritika Auto Industries' statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Our analysis shows 2 warning signs for Pritika Auto Industries (1 is concerning!) and we strongly recommend you look at these before investing.

This note has only looked at a single factor that sheds light on the nature of Pritika Auto Industries' 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. 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.