Investors Shouldn't Be Too Comfortable With Skipper's (NSE:SKIPPER) Earnings

Skipper Limited's (NSE:SKIPPER) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Skipper expanded the number of shares on issue by 9.0% over the last year. Therefore, each share now receives a smaller portion of profit. 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. Check out Skipper's historical EPS growth by clicking on this link.

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

As you can see above, Skipper has been growing its net income over the last few years, with an annualized gain of 494% over three years. But EPS was only up 466% per year, in the exact same period. And at a glance the 83% gain in profit over the last year impresses. But in comparison, EPS only increased by 81% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Skipper 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 Skipper's Profit Performance

Skipper 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 Skipper's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. If you'd like to know more about Skipper as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Skipper, and understanding this should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Skipper's profit. But there are plenty of other ways to inform your opinion of a company. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.