Earnings Troubles May Signal Larger Issues for PSP Projects (NSE:PSPPROJECT) Shareholders

PSP Projects Limited's (NSE:PSPPROJECT) stock showed strength, with investors undeterred by its weak earnings report. Sometimes, shareholders are willing to ignore soft numbers with the hope that they will improve, but our analysis suggests this is unlikely for PSP Projects.

View our latest analysis for PSP Projects

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, PSP Projects increased the number of shares on issue by 10% 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 PSP Projects' EPS by clicking here.

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

PSP Projects' net profit dropped by 31% per year over the last three years. Even looking at the last year, profit was still down 42%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 45% in the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If PSP Projects' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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 PSP Projects' Profit Performance

PSP Projects issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that PSP Projects' statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the 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. If you want to do dive deeper into PSP Projects, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 2 warning signs for PSP Projects you should know about.

This note has only looked at a single factor that sheds light on the nature of PSP 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.