Foods and Inns' (NSE:FOODSIN) Anemic Earnings Might Be Worse Than You Think

A lackluster earnings announcement from Foods and Inns Limited (NSE:FOODSIN) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

See our latest analysis for Foods and Inns

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Foods and Inns increased the number of shares on issue by 16% over the last twelve months by issuing new shares. As a result, its net income is now split between a greater number of shares. 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 Foods and Inns' EPS by clicking here.

A Look At The Impact Of Foods and Inns' Dilution On Its Earnings Per Share (EPS)

Foods and Inns has improved its profit over the last three years, with an annualized gain of 834% in that time. In comparison, earnings per share only gained 774% over the same period. Net profit actually dropped by 23% in the last year. But the EPS result was even worse, with the company recording a decline of 27%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If Foods and Inns' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

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 Foods and Inns' Profit Performance

Foods and Inns issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Foods and Inns' true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, Foods and Inns has 3 warning signs (and 2 which shouldn't be ignored) we think you should know about.

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