Ganesha Ecosphere's (NSE:GANECOS) Shareholders Have More To Worry About Than Only Soft Earnings

The market rallied behind Ganesha Ecosphere Limited's (NSE:GANECOS) stock, leading do a rise in the share price after its recent weak earnings report. Sometimes, shareholders are willing to ignore soft numbers with the hope that they will improve, but our analysis suggests this is unlikely for Ganesha Ecosphere.

See our latest analysis for Ganesha Ecosphere

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Ganesha Ecosphere issued 16% more new shares over the last year. That means its earnings are split among a greater number of shares. 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. You can see a chart of Ganesha Ecosphere's EPS by clicking here.

How Is Dilution Impacting Ganesha Ecosphere's Earnings Per Share (EPS)?

Ganesha Ecosphere's net profit dropped by 6.8% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 42%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 43% in the same period. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Ganesha Ecosphere'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 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 Ganesha Ecosphere's Profit Performance

Ganesha Ecosphere issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Ganesha Ecosphere's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing Ganesha Ecosphere at this point in time. At Simply Wall St, we found 2 warning signs for Ganesha Ecosphere and we think they deserve your attention.

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

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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.