Libas Consumer Products' (NSE:LIBAS) Profits Appear To Have Quality Issues

Libas Consumer Products Limited's (NSE:LIBAS) robust recent earnings didn't do much to move the stock. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

Check out the opportunities and risks within the IN Luxury industry.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Libas Consumer Products issued 49% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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 Libas Consumer Products' historical EPS growth by clicking on this link.

How Is Dilution Impacting Libas Consumer Products' Earnings Per Share (EPS)?

We don't have any data on the company's profits from three years ago. The good news is that profit was up 17% in the last twelve months. On the other hand, earnings per share are only up 29% over the same period. So you can see that the dilution has had a fairly significant impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Libas Consumer Products 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 Libas Consumer Products.

Our Take On Libas Consumer Products' Profit Performance

Libas Consumer Products shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. For this reason, we think that Libas Consumer Products' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that, its earnings per share increased by 29% in the 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. When we did our research, we found 3 warning signs for Libas Consumer Products (1 is concerning!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of Libas Consumer Products' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying.

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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.