Viceroy Hotels' (NSE:VHLTD) Weak Earnings May Only Reveal A Part Of The Whole Picture

A lackluster earnings announcement from Viceroy Hotels Limited (NSE:VHLTD) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

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To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Viceroy Hotels expanded the number of shares on issue by 7.0% 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. You can see a chart of Viceroy Hotels' EPS by clicking here.

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

Viceroy Hotels was losing money three years ago. And even focusing only on the last twelve months, we see profit is down 70%. Sadly, earnings per share fell further, down a full 63% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if Viceroy Hotels' 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 Viceroy Hotels.

Our Take On Viceroy Hotels' Profit Performance

Viceroy 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 Viceroy Hotels' statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. You'd be interested to know, that we found 2 warning signs for Viceroy Hotels and you'll want to know about these bad boys.

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