One Point One Solutions' (NSE:ONEPOINT) Profits Appear To Have Quality Issues

The market for One Point One Solutions Limited's (NSE:ONEPOINT) stock was strong after it released a healthy earnings report last week. Despite this, our analysis suggests that there are some factors weakening the foundations of those good profit numbers.

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One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, One Point One Solutions increased the number of shares on issue by 23% over the last twelve months by issuing new shares. That means its earnings are split among 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 One Point One Solutions' historical EPS growth by clicking on this link.

How Is Dilution Impacting One Point One Solutions' Earnings Per Share (EPS)?

One Point One Solutions has improved its profit over the last three years, with an annualized gain of 332% in that time. In comparison, earnings per share only gained 205% over the same period. And the 27% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 2.2% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if One Point One Solutions can grow EPS persistently. 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 One Point One Solutions.

The Impact Of Unusual Items On Profit

Finally, we should also consider the fact that unusual items boosted One Point One Solutions' net profit by ₹92m over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On One Point One Solutions' Profit Performance

To sum it all up, One Point One Solutions got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. For the reasons mentioned above, we think that a perfunctory glance at One Point One Solutions' statutory profits might make it look better than it really is on an underlying level. If you'd like to know more about One Point One Solutions as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 2 warning signs for One Point One Solutions and you'll want to know about these.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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 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.