Skipper's (NSE:SKIPPERPP) Profits May Not Reveal Underlying Issues

Skipper Limited (NSE:SKIPPERPP) just released a solid earnings report, and the stock displayed some strength. Despite this, our analysis suggests that there are some factors weakening the foundations of those good profit numbers.

Check out our latest analysis for Skipper

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 10.0% over the last year. 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 Skipper's EPS by clicking here.

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

Skipper has improved its profit over the last three years, with an annualized gain of 708% in that time. But EPS was only up 670% per year, in the exact same period. And the 60% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 56% 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 Skipper shareholders will want to see that EPS figure continue to increase. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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 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. For instance, we've identified 3 warning signs for Skipper (2 don't sit too well with us) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of Skipper's 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. 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.