Texmaco Rail & Engineering's (NSE:TEXRAIL) Solid Profits Have Weak Fundamentals

By
Simply Wall St
Published
November 21, 2021
NSEI:TEXRAIL
Source: Shutterstock

Texmaco Rail & Engineering Limited (NSE:TEXRAIL) announced strong profits, but the stock was stagnant. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

Check out our latest analysis for Texmaco Rail & Engineering

earnings-and-revenue-history
NSEI:TEXRAIL Earnings and Revenue History November 22nd 2021

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Texmaco Rail & Engineering increased the number of shares on issue by 11% over the last twelve months by issuing new shares. As a result, its net income is now split between a greater number of shares. 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. Check out Texmaco Rail & Engineering's historical EPS growth by clicking on this link.

How Is Dilution Impacting Texmaco Rail & Engineering's Earnings Per Share? (EPS)

As it happens, we don't know how much the company made or lost three years ago, because we don't have the data. And even focusing only on the last twelve months, we don't have a meaningful growth rate because it made a loss a year ago, too. But mathematics aside, it is always good to see when a formerly unprofitable business come good (though we accept profit would have been higher if dilution had not been required). Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if Texmaco Rail & Engineering's 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 Texmaco Rail & Engineering.

Our Take On Texmaco Rail & Engineering's Profit Performance

Over the last year Texmaco Rail & Engineering issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that Texmaco Rail & Engineering's statutory profits are better than its underlying earnings power. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. When we did our research, we found 4 warning signs for Texmaco Rail & Engineering (2 are concerning!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of Texmaco Rail & Engineering'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. 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 that insiders are buying to be useful.

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