Why PDS' (NSE:PDSL) Shaky Earnings Are Just The Beginning Of Its Problems

Despite PDS Limited's (NSE:PDSL) recent earnings report having lackluster headline numbers, the market responded positively. We think that shareholders might be missing some concerning factors that our analysis found.

See our latest analysis for PDS

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. PDS expanded the number of shares on issue by 6.9% over the last year. Therefore, each share now receives a smaller portion of profit. 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 PDS' historical EPS growth by clicking on this link.

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

Unfortunately, PDS' profit is down 24% per year over three years. Even looking at the last year, profit was still down 30%. Sadly, earnings per share fell further, down a full 31% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if PDS' earnings per share can increase, then the share price should too. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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 PDS' Profit Performance

PDS issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that PDS' statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased 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. 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. You'd be interested to know, that we found 3 warning signs for PDS and you'll want to know about them.

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