Why Kamat Hotels (India)'s (NSE:KAMATHOTEL) Shaky Earnings Are Just The Beginning Of Its Problems

Investors were disappointed by Kamat Hotels (India) Limited's (NSE:KAMATHOTEL ) latest earnings release. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

View our latest analysis for Kamat Hotels (India)

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Kamat Hotels (India) issued 7.6% more new shares over the last year. As a result, its net income is now split between 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 Kamat Hotels (India)'s EPS by clicking here.

How Is Dilution Impacting Kamat Hotels (India)'s Earnings Per Share (EPS)?

Three years ago, Kamat Hotels (India) lost money. Even looking at the last year, profit was still down 86%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 87% 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 Kamat Hotels (India)'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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Kamat Hotels (India).

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Kamat Hotels (India)'s profit was boosted by unusual items worth ₹295m in the last twelve months. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. Kamat Hotels (India) had a rather significant contribution from unusual items relative to its profit to March 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Kamat Hotels (India)'s Profit Performance

In its last report Kamat Hotels (India) benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. Considering all this we'd argue Kamat Hotels (India)'s profits probably give an overly generous impression of its sustainable level of profitability. 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. Be aware that Kamat Hotels (India) is showing 5 warning signs in our investment analysis and 1 of those can't be ignored...

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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.