Lambodhara Textiles' (NSE:LAMBODHARA) Solid Profits Have Weak Fundamentals

Lambodhara Textiles Limited (NSE:LAMBODHARA) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

Check out our latest analysis for Lambodhara Textiles

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Lambodhara Textiles expanded the number of shares on issue by 8.4% over the last year. As a result, its net income is now split between a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. Check out Lambodhara Textiles' historical EPS growth by clicking on this link.

A Look At The Impact Of Lambodhara Textiles' Dilution on Its Earnings Per Share (EPS).

As you can see above, Lambodhara Textiles has been growing its net income over the last few years, with an annualized gain of 165% over three years. But EPS was only up 149% per year, in the exact same period. And the 395% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 380% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Lambodhara Textiles shareholders will want to see that EPS figure continue to increase. 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 Lambodhara Textiles.

Our Take On Lambodhara Textiles' Profit Performance

Each Lambodhara Textiles share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Lambodhara Textiles' 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 Lambodhara Textiles as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 3 warning signs for Lambodhara Textiles and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Lambodhara Textiles' profit. But there are plenty of other ways to inform your opinion of a company. 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 that insiders are buying.

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.

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