We Think That There Are Some Issues For Krishival Foods (NSE:KRISHIVAL) Beyond Its Promising Earnings

The market shrugged off Krishival Foods Limited's (NSE:KRISHIVAL) solid earnings report. We think that investors might be worried about some concerning underlying factors.

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In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Krishival Foods issued 13% 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. Check out Krishival Foods' historical EPS growth by clicking on this link.

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

As you can see above, Krishival Foods has been growing its net income over the last few years, with an annualized gain of 225% over three years. But EPS was only up 156% per year, in the exact same period. And over the last 12 months, the company grew its profit by 18%. On the other hand, earnings per share are only up 19% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if Krishival Foods can grow EPS persistently. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Krishival Foods.

Our Take On Krishival Foods' Profit Performance

Krishival Foods shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Krishival Foods' statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. If you'd like to know more about Krishival Foods as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 1 warning sign for Krishival Foods and you'll want to know about this.

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