Filatex Fashions' (NSE:FILATFASH) Shareholders Have More To Worry About Than Only Soft Earnings

The market wasn't impressed with the soft earnings from Filatex Fashions Limited (NSE:FILATFASH) recently. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

View our latest analysis for Filatex Fashions

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Filatex Fashions increased the number of shares on issue by 1,622% 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 Filatex Fashions' historical EPS growth by clicking on this link.

How Is Dilution Impacting Filatex Fashions' Earnings Per Share (EPS)?

Filatex Fashions has improved its profit over the last three years, with an annualized gain of 7,657% in that time. But EPS was only up 354% per year, in the exact same period. Net profit actually dropped by 25% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 96%. So you can see that the dilution has had a fairly significant impact on shareholders.

In the long term, if Filatex Fashions' 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 Filatex Fashions.

Our Take On Filatex Fashions' Profit Performance

Filatex Fashions issued shares during the year, and that means its EPS performance lags its net income growth. As a result, we think it may well be the case that Filatex Fashions' underlying earnings power is lower than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. 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. To help with this, we've discovered 3 warning signs (2 are a bit concerning!) that you ought to be aware of before buying any shares in Filatex Fashions.

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