Chalet Hotels' (NSE:CHALET) Anemic Earnings Might Be Worse Than You Think

Chalet Hotels Limited's (NSE:CHALET) recent weak earnings report didn't cause a big stock movement. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

Check out our latest analysis for Chalet Hotels

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Chalet Hotels increased the number of shares on issue by 6.3% over the last twelve months by issuing new shares. That means its earnings are split among 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. You can see a chart of Chalet Hotels' EPS by clicking here.

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

Three years ago, Chalet Hotels lost money. Even looking at the last year, profit was still down 72%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 72% in the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if Chalet Hotels' 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 Chalet Hotels' Profit Performance

Chalet Hotels 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 Chalet Hotels' statutory profits are better than its underlying earnings power. 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. If you'd like to know more about Chalet Hotels as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Chalet Hotels has 3 warning signs and it would be unwise to ignore these.

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